Advertisement

Evaluating Capital Projects and Budget Decisions

  • Aman KhanEmail author
Chapter

Abstract

Each year governments receive more funding requests for capital projects from various agencies and departments than the governments can realistically undertake. This makes it necessary for the decision makers to carefully evaluate each project before deciding which ones to accept and which ones to reject. Whether the projects are selected independently or in conjunction with other projects, each must be justified, first and foremost, on the basis of the critical needs of the government. Additionally, the decision must take into consideration the resource base of the government and, more important, the costs and benefits the projects will produce for the government and the political jurisdiction it serves. This chapter discusses some of the commonly used methods for evaluating capital projects. Of the methods discussed here, cost-benefit analysis has been extensively used in government than any of other method because of its versatility and established history. Although not as common in government as they are in the private sector, the chapter also looks at risk and uncertainty associated with capital projects, as well as the measures to deal with the problems. Finally, the chapter concludes with a brief discussion on the need to use depreciation for capital assets.

References

  1. Abt, C. C. (1977). The Issue of Social Costs in Cost-Benefit Analysis of Surgery. In J. B. Bunker, B. A. Barnes, & F. Mosteller (Eds.), Costs, Risks and Benefits of Surgery (pp. 40–55). New York, NY: Oxford University Press.Google Scholar
  2. Arrow, K. (1959). Social Choice and Individual Values. New Haven, CT: Yale University Press.Google Scholar
  3. Gramlich, E. M. (1981). Benefit-Cost Analysis of Government Programs (pp. 98–100). Englewood Cliffs, NJ: Prentice-Hall.Google Scholar
  4. Mikesell, R. F. (1977). The Rate of Discount for Evaluating Public Projects. Washington, DC: American Enterprise Institute for Studies in Economic Policy.Google Scholar
  5. Mishan, E. J. (1981). Introduction to Normative Economics. New York, NY: Oxford University Press.Google Scholar
  6. Quade, E. S. (1982). Analysis for Public Decisions. New York, NY: North Holland.Google Scholar
  7. Thompson, M. S. (1982). Benefit-Cost Analysis for Program Evaluation (pp. 1–2). Beverly Hills, CA: Sage.Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  1. 1.Department of Political ScienceTexas Tech UniversityLubbockUSA

Personalised recommendations