Financial Reforms in Capital Budgeting – Application of Goal Programming Approach

Abstract

Capital Budgeting is an important aspect of finance which an executive and management utilises to optimize the investment. In every organization there are different priorities for investment. Risk and return are two vital aspects to be considered at the time of finalizing an investment option. There are organizations which pay more attention towards the return while reducing the risk whereas few organizations do not hesitate to take risk if more returns are expected from the investment. But the fact remains that there should be a proper balance between the risk and return in any investment decision.

There is a new dimension to this investment criteria, nowadays, the organizations are focusing more on applying mathematical programming models for the management systems. There are several approaches being practiced in this context. Here is a research paper where computing the maximum return for accepting or rejecting a project is decided with the help of fundamental programming model by prioritizing the goals. A new approach of computing capital budgeting is implemented with the help of goal programming. For example, Mobiru proposed the model of Goal Programming for allocating time and cost in Project Management by using the case in the project of a construction company.

The basic objective of this research paper is to present a clear picture on how quality can be brought into finance for getting more precise and better results in the field of capital budgeting. This research paper has provided a critical review of the Capital Budgeting and an attempt to re-counsel it with the ground level reality that a finance manager and management faces and which only can be justified in relation to the earning for the objectives and goals of the organization.

Keywords: Capital Budgeting, Goal Programming, Mathematical Programming, Risk and Return, Project Management