AN EVALUATION OF THE IMPACT OF CAPITAL BUDGETING ON ORGANISATIONAL PERFORMANCE
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Oxford dictionary defines ‘organization’ as “an organized group of people with a particular purpose” ‘Performance’ is defined to include “the action or process of performing a task or function seen in terms of how successfully it is performed”. When these definitions are put together, we can say organization performance relates to how successfully an organized group of people with a particular purpose perform a function.
Essentially, this is what we are speaking about when we refer to organizational performance and achievement of successful outcomes. High organizational performance is when all the parts of an organization work together to achieve great results with results being measured in terms of the value we deliver to customers.
These parts are: Strategic objectives – provide the direction in which everyone within the organization should head. They provide focus and ensure we are all working towards the same end. Organizational structure – this represents the form in which the organization will deliver its services. The structure must support the strategy just as the strategy must have regard to the structure.
For instance, an on-line delivery strategy will not be successfully executed unless the organization has on-line capabilities. Business performance measures – represent the measures by which each area of the organization will be assessed.
There is no single set of measures that may be applied across all organizations. In order to be relevant and of use to the organization, the measures must be determined in light of the organization’s goals and the strategies put in place to achieve those goals.
It is this measurement process that will direct behavior more than any other system that may be put in place. Further, the information must be easily obtainable – in a timely manner. This requires the management information systems to be developed to collect the right data in an efficient way.
Allocation of resources and processes – relates to the decision making approach that takes place within the organization.
It is how the organization goes about deciding where to apply its scarce resources – including money, time and effort – in order to achieve its objectives. Values, culture and guiding principles – this part is unique to the organization.
If the organization was human, this would be its DNA. The culture must support the achievement of the strategic objectives in order to draw out the “best” of people. The values and guiding principles must support the purpose (remembering from our earlier definition that an organization is an organized group of people with a particular purpose) for achievement of desired outcomes.
Reward structures – must reinforce the culture and direct efforts to support the achievement of strategic objectives. Reward structures may include various forms – monetary (for example, bonus on achievement of short term goals), promotion (recognition of having acquired certain skills),
celebration event (recognizing and congratulating team efforts), leave of absence / day off (recognition and ‘thank you’ for a job well done), and so on. All these parts are inter-related and a change to one will impact one or more of the others. Similarly, one poor performing part will potentially negatively impact the others and lead to less than successful results.
So, what is organizational performance? It’s getting all of these parts to work in harmony in order to achieve great results. An efficient economic system calls for a dependable mechanism to allocate its resources.
Christy (1966) describes that land, labor and capital are to be directed to their best uses, and should hence be placed in the hands of those who can use them most capably.
In a market economy, this allocation process consists largely of a set of private decisions, which are directed by a network of free markets and flexible prices . Important among these decisions are capital investments decisions that according to Northcott (1995) are vital at two levels: for the future operability of the individual firm making the investment, and for the economy
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AN EVALUATION OF THE IMPACT OF CAPITAL BUDGETING ON ORGANISATIONAL PPERFORMANCE
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