MIT Sloan Management Review

Often companies” budgeting processes don”t result in capital being invested optimally. The reason may be that strong personalities trump even well-designed systems. The authors profile five archetypes of bad behavior that line managers use to subvert logical decision making in order to grab resources. They also show how to counteract such behavior and instill values that lead to better use of investment capital.

Why do companies frequently make bad investment decisions and continue to blunder, even after the weaknesses in their capital budgeting analyses are evident? Because, say the authors, they don’t integrate capital budgeting into their overall strategy. To address this, the authors present a framework for dynamic capital budgeting that can help managers make intelligent investment decisions with a long-term strategy in mind.