Decentralization of the Capital Budgeting Authority

Ed M. Sharon
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Ed M. Sharon: American Natural Resources, Detroit

Management Science, 1979, vol. 25, issue 1, 31-42

Abstract: A conceptually new first-cut decision-aid for optimal delegation is introduced. It takes a subjective approach to capital budgeting, from the delegator's perspective. A model captures the tradeoffs between the cost of centralized (duplicated) review, and the opportunity cost and risk of having (otherwise) "unacceptable" projects. Two explicit limits to optimal decentralization are identified to help headquarters (HQ) to select the kinds of proposals that should be: (a) Approved and executed by divisions without HQ review. (b) Rejected by divisions without HQ review. (c) Submitted to HQ for a centralized review. A numerical example is presented to demonstrate the process.

Keywords: planning: corporate; organizational studies: design; finance: capital budgeting (search for similar items in EconPapers)
Date: 1979
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:25:y:1979:i:1:p:31-42

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