Capital Expenditures : Another approach to deciding on capital expenditure investments

Management Control Systems

Capital Expenditures : Another approach to deciding on capital expenditure investments

CASE STUDY 4

Capital Expenditures : Another approach to deciding on capital expenditure investments is to assign a priority to each investment proposed. We tend to limit the priority scale to values, as follows. 1. Absolute Must. Includes security, legal, regulatory, end-of-life equipment; typically externally mandated, that is, you really have little or no choice. Simply stated, if you are under very tight capital expenditure and/or expense budget constraints, the cutoff is drawn here. 2. Highly Desired/Business-Critical. Includes short term “break even” (less than six months), significant short-term “return to top or bottom line” less than months), and mega projects already in progress. 3. Wanted. Valuable, with a longer return term (more than 12 months). Typically, these projects get funded only if there is capital money remaining, if resources are available, and if revenue projections are fairly secured. 4. Nice to Have. Given available bandwidth in people and money, there is a good return on these projects, but typically the ROI has more intangibles. Unlikely to be funded in this budget year; might go up the priority list in subsequent budget years. It is important to have some projects in this priority, as it helps to better calibrate the higher priorities. Expenses The following items constitute what is most typically referred to as “the budget.” The major categories of budget expenses are: Personnel • Salaries and benefits (including hiring fees and bonuses) • Training and education • Travel • Morale • Staff-related depreciation • Temporary help/consultants • Miscellaneous (space, telecom, and so on) Hardware • Depreciation • Maintenance • Repairs • Leases Software • Depreciation • Maintenance • Customer support • Updates • Repairs • Leases Services • Leased lines • Our sourced network services • Security services • Applications service providers (ASPs) • Miscellaneous (transport, courier, periodicals, and so on)

Q1) Explain the needs of Capital Expenditure investment.

Q2) Give any two difference between hardware and software.

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