build-a-capital-budget

name	build-a-capital-budget
category	money
description	Build a capital budget that compares alternatives through incremental cash flows, risk, capacity, dependencies, and post-investment accountability. Use when deciding whether, when, or how to fund equipment, facilities, technology, or other long-lived investments.

build-a-capital-budget

Model the decision against a credible do-nothing or defer alternative.

When to use

• Use for project selection, portfolio prioritization, replacement decisions, or staged investment.
• Keep accounting depreciation distinct from cash flow and tax effects.

Procedure

1. Define decision owner, project scope, alternatives, baseline, horizon, currency, tax basis, constraints, and approval thresholds.
2. Record demand, capacity, useful life, timing, dependencies, implementation resources, regulatory needs, and benefits.
3. Estimate incremental acquisition, implementation, training, operating, maintenance, working-capital, financing-independent, closure, and residual cash flows.
4. Separate committed, avoidable, sunk, shared, and allocated costs. Do not count sunk costs as incremental.
5. Obtain the governed discount rate and document inflation, tax, currency, and terminal assumptions.
6. Calculate net present value, internal rate of return, payback, and capacity effects while noting each metric's limitations.
7. Compare do-nothing, defer, lease, buy, outsource, stage, and abandon options where relevant.
8. Stress price, volume, timing, cost, useful life, exchange rate, residual value, and dependency failures.
9. Check formulas, cash-flow signs, tax, timing, double counting, scenario coherence, and portfolio constraints.
10. Record the decision, conditions, owner, approved envelope, milestones, benefit measures, and post-investment review date.

Done

• A capital-budget model records alternatives, incremental cash flows, assumptions, scenarios, constraints, decision, and review ownership
• Formula, tax, timing, sensitivity, source, and post-investment checks verify the model and expose deviations from the approved case