Many businesses seek opportunities to grow by increasing their customer base, serving their customers better or by making internal processes more efficient. These opportunities often require the company to complete various capital projects. Capital projects require a large amount of resources, consisting of both financial resources and employee time. The company budgets for these projects to ensure enough resources are available. Several types of capital projects need to be considered in the budget process.
New Product Line
One type of project included in the capital budgeting process involves new product lines. Company employees or customers submit new product ideas for the company. If the company decides to pursue this idea, management needs to plan for a product line to manufacture the product. This involves purchasing new equipment or modifying existing equipment. Both options require the company to invest money and time.
New Office Building
Some companies outgrow their current office facility by experiencing an increase in the number of office employees. This occurs when a company discontinues an outsourcing agreement or when the company increases administrative headcount. The company may purchase a new building or build an addition onto the current building. Both projects require capital budgeting to ensure that the company holds adequate resources to complete the project.
A company's software needs change over time. The current accounting system may lack the ability to consider accounting changes. The timekeeping system might require employees to manually key in their work hours rather than scan the data automatically. Different computer systems might lack the ability to interface electronically with each other, requiring employees to enter data from one system to the other. A software upgrade or a conversion to a new software package requires employee time to implement the software and train other employees. It also requires the company to invest financial resources to purchase the software. The company needs to include a software conversion project in its capital budget.
Computer Equipment Upgrade
Companies use computerized technology in the office and manufacturing facilities. The office staff uses computers to maintain their current records and to communicate with customers or vendors. The manufacturing staff uses computers to enter production data or employee work hours. As technology improves, companies need to consider whether the current computer equipment needs an upgrade or replacement. The cost of this upgrade needs to be included in the capital budget.