Use of Capital Budgeting Techniques and an Analytic Approach to Capital Investment Decisions in Canadian Municipal Governments

Abstract

Capital budgeting techniques are useful tools to municipal administrators in managing organizational resources. A survey of capital budgeting practices of Canadian municipal governments reveals that a minority used capital budgeting techniques; payback period dominates over discounted cash flow analysis in evaluating capital investments; and pitfalls are common in its application. More specifically, there is an emphasis of quantitative/financial items over qualitative/intangible factors. In this study, the analytic hierarchy process, a multi‐attribute decision model that accounts for both tangibles and intangibles, is presented as a tool for capital budgeting decisions such that resource allocation becomes more effective in municipal governments.