Major capital decisions and technological change

Abstract

This paper reviews a wide array of the analytical approaches to major capital decision-making available in the literature; indicates some of their weaknesses, especially when major technological changes are involved; suggests some modifications to improve their usefulness; and illustrates some of the additional benefits offered by such redesigned models The approaches examined are: neo-classical, including certainty and uncertainty models; behavioral, including organizational and simulation models; and financial, including evaluative and resource allocation models. After reviewing some of the practical issues confronted in the decision making process a modified general framework is presented to help strengthen the analysis of proposed capital projects Finally, bases are suggested for integrating evaluative investment criteria with the production capabilities embodied in major capital facilities and engendered by major technological innovations.