Answer to Question #206339 in Management for KAM

Question

SUBJECT : PROJECT PLANNING AND CONTROL

1. What is relation between capital budgeting and risk analysis?

Answer 1

Capital budgeting is a method of determining if a company's long-term expenditures, such as new equipment, replacement machinery, new facilities, innovative models, and research and development initiatives, are worthwhile. Managers must consider the risks of the venture not turning out the way they want it to for a variety of reasons when embarking on this planning process. When it comes to capital budgeting, there are many different types of risks to consider. Each of these dangers refers to a situation in which market volatility might compel corporate managers to change their plans. Sensitivity analysis, scenario analysis, and break-even analysis are some of the methods for measuring and preparing to cope with and plan for these risks.