CAT / FIA FFM Syllabus E. Investment Decisions - Importance of capital investment planning - Notes ^{1 / 5}

is the process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing.

Capital budgeting is important because it creates accountability and measurability

Any business that seeks to invest its resources in a project, without understanding the risks and returns involved, would be held as irresponsible by its owners or shareholders.

Furthermore, if a business has no way of measuring the effectiveness of its investment decisions, chances are that the business will have little chance of surviving in the competitive marketplace.