Is it time to retire traditional capital budgeting methods?
Monday 28 Septmber, 08:00-09:30 and 16:00-17:30 BST
Although discounted cash flow techniques as applied in investment decision making has enjoyed an illustrious history for almost 100 years, does it remain relevant and effective for today’s radically transformed context?
These techniques suffer from two critical shortcomings. Project assessments produced by traditional capital budgeting rely on evaluating their rendered net present value. Typically, value is measured exclusively by accumulating net cash flows adjusted for time attributable to the shareholders while overlooking wider environmental factors. Negative externalities, including resource degradation, pollution, and global warming, economically distressed communities, and fractured supply chains, are at best imperfectly costed or subsequently internalized through unanticipated government-imposed taxes, regulations, and penalties. Positive externalities, such as those emanating from a sophisticated country market, a productive educated workforce, or localized industry clusters, are often treated as free goods. Secondly, these techniques are drawn from bond price evaluations under reversible buy-sell facilities and cash-flow certainty, but capital expenditure is inherently risky, competitive, and management directed. Project opportunities are irreversible since the loss of first-mover advantages from postponed investments may only be partly repairable and their uncertain cash-flow stream while complicating their valuation offers management the timing option of when to invest and when to divest.
In this masterclass presentation, Professor Roger Adkins will systematically map these shortcomings to develop investment techniques that yield a fuller evaluative representation of the project opportunities and potentially lead to improved decision making in a future of increasing challenges. There will be an opportunity to discuss views and perspectives.
Roger Adkins is a Professor of Accounting Finance and Economics at the University of Bradford's School of Management. He joined the School in 2011 having previously held an academic post at the Salford University Business School, following appointments in Tanzania at the Universities of Dar es Salaam and Mzumbe. He has a PhD in Accounting and Finance from Manchester Business School.