Steps of Capital Budgeting Process

Capital budgeting is process of selecting best long term investment project . Capital budgeting is long term planning for making and financing proposed capital out laying.

Steps for capital budgeting process


Ist step - Part 1

Identification involved in capital budgeting proposals


In this step of proposal, we identify best investment projects. For example, we can invest of fund in Health industry, media industry or any other. But, we have identify, we have more than 20 years experience in education industry. So, best is to invest in education industry. Like this, you can select best area where you have to invest your money. Otherwise, it will be just playing of gambling.


1st  step - Part 2 

Screening the proposal

Now, once again after selecting industry, we will go more deep to screen the proposal of investment. In education industry, we can invest to open school or educational institute, we can invest to start own publishing company or to selling the books. So, before actual investment, screening the proposal and then focus on anyone project.


2nd step

Evaluation Investment Projects 

For example, we have decided to open school. So, there are different type of school. Now, we evaluate its investment through different capital budgeting tools like pay back period, net present value and internal rate of return method.


3rd Step 

Select Best Investment Project 

After evaluation through capital budgeting methods, we will select best investment project. In which we invest our money for getting return.

4th Step 

Performance Monitoring

This is 4th step in which we start monitor the performance by keeping its accounts. If performance is not coming as per our estimation, we can change the project fastly in the initial stage.


5th Step 

Feed Back 


Feed back is controlling process of capital budgeting. In which we check the investment time to time, if there is any default any where in the investment, we try to correct it for long term better return on investment.