CAPEX, or capital expenditures, are important and necessary actions for a firm to consider while investing. The use of company cash to invest in long-term assets is a part of capital budgeting decisions (Heisinger & Hoyle). These actions and decisions entail the purchase of fixed assets such as factories, buildings, and other structures. Understanding CAPEX and the qualitative aspects that influence it can help the organization make smarter investments. A few studies have shed some light on capital budgeting’s non-financial features. For example, (Shimin, Shodhganga1995, pg.239) discovered that non-financial procedures play a significant role in project appraisal in his research of 115 CFOs. Similarly, (Wroblewski, 2019) found that while quantitative influences are dominating, qualitative considerations also influence investment decisions in 77% of the organizations.
It is well established that the CAPEX decisions we make are influenced by both quantitative and qualitative considerations. Quantitative factors, such as interest rates, are factors that can be calculated. Qualitative variables, on the other hand, are non-quantifiable but equally significant factors to consider before making a decision; in business parlance, these are referred to as soft factors. 1) Social trends, 2) political issues, and 3) business culture are all qualitative elements that might influence CAPEX decision-making.
Success in capital budgeting lies not only in numbers, but also in understanding the qualitative aspects that shape investment decisions.
– Warren Buffet
Because public opinion does not always remain constant and fluctuates over time, social trends are an important issue to examine. For example, animal-tested products are currently a no-no for most consumers, and failing to adhere to this can result in serious social concerns. Staff working hours, job scope, salaries, and facilities are all elements that influence societal trends.
Political influences have an impact on corporate decision-making in every country. Taxation variables, for example, may vary from time to time depending on political administration. In Malaysia, there is currently a heated dispute between the ruling coalition and the opposition over the national minimum wage, therefore as a business manager, it is critical that we make judgments based on political concerns.
Corporate cultures, which entail people’s behaviors, are, in my opinion, the most significant variables to consider for larger and older firms. Due to business cultures, calculating an effective plan on paper may not be successful. For example, a company like Toyota in Japan, where employees take pride in delivering one of the highest-quality vehicles in the world, may be dissatisfied with management if the product’s quality is reduced to save money, and this may reduce productivity because it goes against the company’s corporate culture. Although quantitative elements appear to be significant in CAPEX decision-making in theory, qualitative factors are also important and must be considered; in my opinion, this is the YinYang of CAPEX decision making.