This document summarizes a seminar presentation on qualitative analysis of capital budgeting. The presentation discusses how qualitative factors are important considerations in capital budgeting decisions, as quantitative factors alone cannot capture strategic aspects, managerial judgment, and other realities of project evaluation. Some key qualitative factors discussed include urgency, strategy, environment, managerial intuition, quality of information, and sponsor track record. The presentation also examines how strategic planning and capital budgeting processes can be better aligned to consider both financial and strategic objectives.

1. Department of Management Studies
JNNCE, Shimoga – 577204 (Karnataka
Seminar On
“QUALITATIVE ANALYSIS OF CAPITAL
BUDGETING”
Under the Guidance of
MR.RAVISHA .N.S
lecturer
Department of Management Studies
JNNCE, Shimoga
Presented By
DILEEP.N.S.
IVSemester MBA
Department of Management Studies
JNNCE, Shimoga

2. QUALITATIVE ANANLYSIS
• Qualitative factors in capital budgeting.
• Strategic aspects in capital budgeting.

3. INTRODUCTION
• In real world, however, many facets of a project are not or often cannot be
quantified, managerial judgement is expressed in a somewhat qualitative
manner, informational asymmetry leads to agency problems managers
bothered about EPS and least bothered about NPV.
• In essence we assumed that the relevant facts of a project can be
quantified and managers act to maximise the value of the firm and that
there is a project sponsors develop unbiased forecasts.
• Put differently, judgemental, strategic, behavioural, and organisational
considerations all of which difficult to quantify and incorporate in a
rational, economic model have important bearing on capital budgeting
• Just because issues cant be expressed and handled quantitatively, we cant
ignore them.

4. QUALITATIVE FACTORS TO CAPITAL
BUDGETING
INTRODUCTION
• In practice, however, companies, although tending to shift to the formal
methods of evaluation, give considerable importance to qualitative
factors.
• Most companies in India are guided, one time or other, by three
qualitative factors: urgency, strategy, and environment.
• Some companies also consider intuition, security and social considerations
as important qualitative factors
• Most proposals, in the nature of cost reduction or replacement or process
or product improvements take place at plant level.
• The contribution of top management in generating investment ideas is
generally confined to expansion or diversification projects.
• The proposals may originate systematically or haphazardly in a firm.

5. MANAGERIAL INTUITION AND
JUDGEMENT
• Vision of judgement of the future plays an important role.
• The opportunities and constraints of selecting a project, its
evaluation of qualitative and quantitative factors, and the weight
age on every bit of pros and cons, cost-benefit analysis, etc., are
essential elements of judgement.
• Judgement and intuition should definitely be used when a decision
of choice has to be made between two or more, closely beneficial
projects, or when it involves changing the long-term strategy of the
company. For routine matters, liquidity and profits should be
preferred over judgement.
• It (judgement) plays a very important role in determining the
reliability of figures with the help of qualitative methods as well as
other known financial matters affecting the projects.

6. Qualitative aspects in capital
budgeting are
a.
b.
c.
d.
e.
QUALITY OF INFORMATION
TRACK RECORD OF SPONSOR
INTERNAL POLITICS
OPPORTUNITY COSTS
COST OF REVERSING THE DECISIONS

7. STRENGTHENING THE LINKS
BETWEEN STRATEGY AND CAPITAL
BUDGETING
• Investment proposals are often considered as self-contained projects and
viewed more or less in isolation.
• The sponsors of proposals, particularly operating personnel, tend to, quite
understandably, view the proposals from their limited perspective.
• Many investment proposals, suggested by people down the line and
apparently fulfilling certain standards of profitability, may be rejected by
the capital budgeting because they conflict with the rationale of the firms
strategy.

8. BRIDGING THE GAP BETWEEN STRATEGIC
PLANNING AND FINANCIAL ANALYSIS
STRATEGIC PLANNING
• Objective is to achieve a
balanced goal structure
• Responsibility is to take
 Internal :corporate
planning dept.
 External: consultant
FINANCIAL ANALYSIS
• Objective is to maximise
shareholders value
• Responsibility lies with
 Internal : finance
department
 External: investment banker