Designing a capital budgeting system that works

Conventional capital budgeting systems do not fully reflect or adequately respond to the way in which capital expenditure decisions are actually made. Evidence also exists that the nature of this decision process is dependent on the type of the organization. This paper describes an empirically developed understanding of how capital expenditure decisions are being made, identifies ways to support and improve these decisions, and proposes an approach to linking the design of capital budgeting systems with the type of organization in which they are to operate.     

Cui bono? Depicting the benefits of the new municipal budgeting and accounting regime in Germany

The new budgeting and accounting regime for the public sector (Doppik), which is based on private sector accounting standards, has been the subject of numerous discussions in research and practice in Germany for the last 20 years. However, those discussions were mostly characterized by assertions, unproven statements and logical arguments. The objective of this paper is to empirically analyze the perceived benefits of a reformed municipal accrual budgeting and accounting system by using a structural equation model. Our results show that improved management capabilities are an important indirect factor, whereas efficiency, intergenerational equity, and transparency are direct determinants of benefit. The consistent implementation of the new output-/outcome-oriented management rationality and the necessity of harmonizing budget laws are revealed as prerequisites for further development.     

Modelbase Construction with Object-Oriented Constructs*

This paper proposes modelbase construction mechanisms in a decision support system (DSS) for representing and managing models of diverse management science/operations research modeling paradigms, using object-oriented database management systems (ODBMS) constructs. It focuses on the construction of a modelbase that maintains logical independence among the DSS components including modelbase, database, and solvers, but relieves the mismatching characteristics by facilitating intelligent and stabilized integration of them. As a conceptual framework to build such a modelbase, this research uses generic model concepts, and adopts structured modeling language (SML) as a paradigm-neutral model representation sublanguage. In the modelbase, three model abstraction layers including model type, model structure, and model instance are devised to facilitate the capture of multiple modeling paradigms and specific application models in different instantiation levels. The constructs and methods discussed are flexible enough to be applied to a wide variety of decision-making and problem-solving paradigms. A prototype system is developed under a commercial ODBMS called OBJECTSTORE with the C++ programming language, and diverse model manipulation commands are illustrated by an object-oriented structured query language (OSQL).     

基于进程代数的DSS 模型系统建模与实现

把进程代数(process algebra , PA) 引入DSS 模型系统建模,提出一种新的DSS 模型建模理 论体系———DSS 模型代数,它可以描述模型之间激发、选择、重复、同步和并发等行为. 建立了 基于DSS 模型代数的模型系统与组件模型的对应关系,提出了基于组件技术的模型系统实现 方法,并通过一个实例给出实现方法的具体应用.     

An interactive decision support system for an aggregate production planning model based on multiple criteria mixed integer linear programming

In this paper, we present an aggregate production planning (APP) model applied to a Portuguese firm that produces construction materials. A multiple criteria mixed integer linear programming (MCMILP) model is developed with the following performance criteria: (1) maximize profit, (2) minimize late orders, and (3) minimize work force level changes. It includes certain operational features such as partial inflexibility of the work force, legal restrictions on workload, work force size (workers to be hired and downsized), workers in training, and production and inventory capacity. The purpose is to determine the number of workers for each worker type, the number of overtime hours, the inventory level for each product category, and the level of subcontracting in order to meet the forecasted demand for a planning period of 12 months. Additionally, a decision support system (DSS) based on the MCMILP model is proposed. It will help practitioners find the “best” solution for an APP problem without having to familiarize themselves with the mathematical complexities associated with the model. An example to illustrate the use of the DSS is also included.     

The Contingent-Claims Approach to Investment Decisions*

This paper presents a contingent-claims approach to project valuation when capital expenditures are made sequentially over time. It focuses on an important facet of sequential investment projects that the firm can undertake—or pass up projects—as more information becomes available. The contingent-claims approach takes account of this important feature of firms' investment decision process, whereas the traditional capital budgeting procedure does not. Since the traditional method does not reflect the options nature of investment opportunities, it underestimates the value of sequential investment projects. As a result, a naive implementation of the traditional capital budgeting procedure could result in rejecting profitable projects. The extent of undervaluation associated with the traditional capital budgeting procedure is greater when the correlation between the random component of the future asset value and that of the required capital expenditure is smaller and/or when the growth rate of the required capital expenditure is higher.     

Investment Appraisal and Measures of Performance in Italian Divisionalised Companies

The aim of this study was to describe and analyse the current practice and trends in the development of management control practice as regards divisional investments in large Italian firms, using a survey questionnaire method. Some comparison with top North-American and German international manufacturing units were also made.The findings of the study supported two theoretical propositions. In the identification stage, firms tend to decentralise the process of capital budgeting and the control mechanism ensuring the link between corporate strategic objectives and capital expenditure projects at divisional level is based on guidelines produced by headquarters. In the selection stage firms which perceive a high interface level with the corporate strategic objectives in divisional capital expenditure tend to use discounted cash flow techniques when choosing one or more investment projects. When an economic approach is used to provide a comprehensive measure of performance, the theoretical framework fails to predict the relationship between corporate control and performance evaluation system in divisionalised companies. Essentially, financial control combines non-financial measures, used to understand manufacturing operations, with traditional accounting measures, used to understand the effects of manufacturing activities on the level of operating cash flow and operating income, as a comprehensive measures of performance in the medium-term of divisional investments.     

Public expenditure and public accountability

Within a parliamentary democracy, both the Executive and Legislature have key roles in ensuring public accountability for budgetary decisions. The internal budgetary processes of the United Kingdom Government have developed the PESC system of planning public expenditure over a rolling five year period at constant prices. At the same time, the effectiveness of parliamentary financial procedures, far removed from the decision processes, has further declined. The key weaknesses are identified as: (1) the almost complete divorce between parliamentary discussion of expenditure and that of taxation; (2) the manner in which the Government's survival might be imperilled by defeat even on minor items, which limits the activities of Government backbenchers; (3) the unequal knowledge and resources of Government and Parliament, accentuated by British traditions of official secrecy; and (4) the failure of Parliament to seize those opportunities which are available (e.g. debates on the annual Public Expenditure White Paper). Proposals have been made for reform of financial procedures and for a new system of select committees by the Expenditure and Procedure Committees. These are evaluated and given a cautious approval. The emphasis is on the aim of integrating parliamentary debate of the expenditure and revenue sides of the public budget. A single budgetary document is proposed. Multi-year tax forecasts, and the underlying medium term economic assessment, should be published. ‘Tax expenditures’ should be carefully costed and linked to the relevant expenditure programmes. These reforms would provide a more coherent and comprehensive framework for public debate of budgetary decisions.     

A Decision Support System for Production/ Distribution Planning in Continuous Manufacturing

This paper presents a decision support system (DSS) for managing production/distribution planning in a continuous manufacturing environment. The vendor has multiple plants and distribution centers (DCs). The trading partners have widely varying independent demand patterns. The DSS is designed for use in a multiproduct environment with overlapping raw materials and processing requirements. The production and distribution lead times at plants may span multiple planning periods. The impact of any manual override of a suggested solution can also be evaluated. The DSS is based on a linear programming model with a rolling horizon and was originally designed for a large process industry. Results of a pilot implementation using actual data are also presented, which show potential for significant savings for the company.     

BPR决策支持系统分布式求解模型的研究

基于多Ａｇｅｎｔ规划技术,提出并建立了支持企业过程重组（ＢＰＲ）的决策支持系统的分布式协同求解模型,包括企业过程的分层规划理论、多Ａｇｅｎｔ协同模式分析、状态空间模型以及任务分解算法等四部分内容．它的提出为企业过程重组的工具支持提供了理论依据和技术方法．实践证明,应用该技术可以有效地指导ＢＰＲＤＳＳ的开发     

AUTOCORRELATED CASH FLOWS AND THE SELECTION OF A PORTFOLIO OF CAPITAL ASSETS *

Capital budgeting models for analyzing real assets typically are based on a set of restrictive assumptions that influence financial managers' decisions and may prevent optimization of the firm's objectives. This research examines the common restrictive assumption that cash flows are intertemporally independent by first developing an economic state and simulation model based on a Markov process for including autocorrelated cash flows in the capital budgeting decision process and then demonstrating why managers should include autocorrelated cash flows in capital budgeting models by empirically testing the impact of assuming intertemporally independent cash flows on capital budgeting decisions. The results indicate that ignoring autocorrelated cash flows seriously limits the ability of capital budgeting models to provide optimal investment decisions. The model also is very attractive for practical application because it can be implemented with a minimum number of estimates and provides the set of input data required by a number of capital budgeting models. A discussion of the implementation of the model is included.     

PERCEIVED INFORMATION STRUCTURE: IMPLICATIONS FOR DECISION SUPPORT SYSTEM DESIGN

Top-level decision making in business organizations is characterized by high degrees of uncertainty, incomplete information, and conflicting objectives. To support top-level decision making effectively, decision support systems (DSSs) have been proposed. Information supplied by a DSS must be selective in that not all possible information sets may be feasibly or economically represented in the data base. This study suggests that discovery of perceptual complexity (dimensionality) of information items, and the subsequent categorization of decision makers having the same perceptions of those information items, is a first step in the ultimate design of an effective DSS. Through the use of multidimensional scaling in a field setting, this study shows the feasibility of creating relatively homogeneous groups of decision makers according to the content and number of dimensions associated with various information items. Further results of the research suggest that information can be tailored to classes of users, which has cost-benefit implications as well as the potential to improve the quality of the resultant decisions.     

A path analytic study of the effect of top management support for information systems performance

Information systems (IS) have become a vital component of an organization's competitive practices. Organizations have tried to differentiate themselves based on their use and adaptation of new information technology. Top management support (TMS) is a significant factor in influencing the effectiveness of the IS function in an organization. The literature has conceptually supported this notion, but empirical evidence has been sparse. This paper develops a two-tiered framework for studying the relationship between top management support, the IS function, and IS performance. This conceptual model was empirically tested using structural equation modeling based on data collected through a survey instrument. The results support the direct and indirect relationships depicted in the model between top management support and IS performance.     

Editorial Another milestone

A Master Production Scheduling Decision Support System within a multi-product medical supplies market has the dual task of providing good customer service levels while maintaining minimum reasonable levels of finished goods stock in the face of considerable internal manufacturing lead time and customer demand uncertainty. This paper examines the critical design parameters within an adaptive model highlighting how the total system orders in the internal pipeline are utilized in the decision-making process for assessing how much to load the internal manufacturing pipeline. Two different methods for tracking manufacturing lead times within the adaptive loop are also considered. Classical control concepts are applied within the Decision Support System (DSS) to avoid any long-term drift in finished stocks. Finally scenario analysis is performed via simulation for a set of design parameters and a range of stimuli typical of company operating situations. An effective decision support system design in terms of architecture and parameter settings is recommended based upon the ability of the model to maintain high customer service levels. The DSS readily interfaces between marketing and production functions to enhance company competitive advantage across a wide range of products.     

税费改革对乡镇财政状况的影响分析——全国5省50个乡镇的实证研究报告

本文利用抽样调查数据,从乡镇财政的收入结构(预算内和预算外)、支出结构(预算内和预算外)、上解和补助、财政体制等方面,对税费改革乡镇财力的前后情况进行比较。研究表明,税费改革后,尽管县与乡镇之间的上解和补助都有所增加,但从总体上看,县对乡镇的财政控制高于改革前,乡镇对自身的财政控制能力越来越弱。同时研究还表明,同改革前的2000年相比较,2004年的乡镇财政状况进一步恶化。另外,税费改革对不同省份和地区的影响是不同的,相对于贫困地区,对富裕地区的不利影响更严重。     

An Application of Expectancy Theory to Explain a Manager's Intention to Use a Decision Support System

A continuing gap exists between the capabilities of sophisticated computer-based information systems and the extent to which these systems are used by individuals. Studies which have examined the relationship between system utilization and various user, system, implementation, and organizational variables have provided few consistent findings. A new approach to this topic is suggested by a recent study by Davis, Bagozzi, and Warshaw [11], which indicates that individuals' intentions to use a system determine subsequent use. A large body of psychology-based research also supports this relationship between behavioral intentions and subsequent behavior. This study employs expectancy theory, which has often been used to examine behavioral intentions, to explain managers' intentions to use a decision support system (DSS). The results imply that the variables of the expectancy force model are determinants of a manager's behavioral intentions to use a DSS, and the variables of the expectancy valence model are determinants of the attractiveness of using a DSS to a manager.     

Ranked Items Auctions and Online Advertisement

We study auctions for a set of commonly‐ranked items where each buyer has unit demand. This setting has promising applications in areas such as keyword auctions in the search engine advertising industry, the sale of quality‐ranked raw materials, etc. An auction mechanism suitable for this setting is the simultaneous pooled auction (SPA), where each bidder simultaneously submits a single bid and is allocated an object based on the rank of his bid among all the bids. We study how to improve the seller's expected revenue by enforcing a reserve price in an SPA. We find that the use of an appropriate reserve price may significantly increase the seller's revenue, especially when the number of items for sale is relatively large compared to the number of participating bidders. One inherent problem in the SPA is that some bidders may incur ex post losses; that is, they pay more than what they value the received objects. We propose a tailored VCG mechanism that generates the same expected revenue as the SPA does, while bidders do not incur any ex post loss. We also discuss the potential applications of this research to keyword auctions.     

On the Use of Buy Up as a Model of Customer Choice in Revenue Management

We consider settings in which a revenue manager controls bookings over a sequence of flights. The revenue manager uses a buy‐up model to select booking limits and updates estimates of the model parameters as data are accumulated. The buy‐up model we consider is based upon a simple model of customer choice, wherein each low‐fare customer who is not able to purchase a low‐fare ticket will, with a fixed probability, “buy up” to the high fare, independent of everything else. We analyze the evolution of the parameter estimates (e.g., the buy‐up probability) and chosen booking limits in situations where the buy‐up model is misspecified, that is, in situations where there is no setting of its parameters for which its objective function gives an accurate representation of expected revenue as a function of the booking limit. The analysis is motivated by the common situation in which a revenue manager does not know precisely how customers behave but nevertheless uses a parametric model to make decisions. Under some assumptions, we prove that the booking limits and parameter estimates converge and we compare the actual expected revenue at the limiting values with that associated with the booking limits that would be chosen if the revenue manager knew the actual behavior of customers. The analysis shows that the buy‐up model often works reasonably well even when it is misspecified, and also reveals the importance of understanding how parameter estimates of misspecified models vary as functions of decisions.     

The Design of a Knowledge-Based Decision Support System to Support the Information Analyst in Determining Requirements

Decision support system (DSS) researchers and designers continue to look for unstructured organizational tasks where there is a critical need for intelligent computer-based support. One such decision task is information requirements determination. Requirements determination is recognized as the most crucial phase of the systems development life cycle. Unfortunately, most methodologies and CASE tools focus only on how to specify the requirements once they are determined. There is very little computer support for the process of determining requirements. This paper discusses the conceptual design and development of a knowledge-based DSS to support information analysts in the critical decision task of determining requirements for the design of effective information systems. The expert modeling support system has the expertise to assist the analyst in studying the organization as a whole and in modeling the system under study in the context of the overall organization's goals and needs. The focus of the paper is on the problems associated with building the knowledge base component of the intelligent decision support system. A prototype implementation of the system is described.