Capital budget addresses the issue of long term capital investments. In capital budgeting, the management decides which projects will help the organization achieve its objectives and thus, worthy of funding and which should be rejected. Capital budgeting requests raise various issues because proposed projects often require massive investment of resources, thus, the management has to be really sure before committing funds. Since decisions are often not easily reversible and projects have long term implications for the whole organization, efficient allocation of limited resources among competing proposals become a daunting task for the management. Things get further complicated by the high risks and uncertainties involved in many of the projects. This is why capital budgeting candidates have to be evaluated very carefully.

Managers can take several steps to ensure that the capital budgeting requests support the overall needs of the organization. The manager may do a feasibility study on the problem he wants to address or the opportunity he wants to take advantage of and investigate all possible solutions. This will ensure that all the possible solutions are investigated and the most effective solution is eventually implemented.

The manager may also work with other departments to demonstrate how the project will have company-wide advantages as well as seek their suggestions to improve the project. If the manager can show that the costs of the project are recoverable within a specified time frame, it will increase the prospects of approval. In addition, calculating the opportunity cost of not implementing the project (EMS World, 2011) may also help justify the capital spending. Outside experts may also be consulted who might have had experience on similar projects and thus, could provide a more accurate assessment of the project under investigation.