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.     

A Warning Zone Method for the Multiperiod Cost Variance Investigation Problem

This paper develops a warning zone approach to make variance investigation decisions for a multiperiod process. The assumed cost generation process varies between an in-control and out-of-control state. These states cannot be directly observed, but must be inferred from the reported cost variances. Using the warning zone method of inference, the manager investigates the process whenever an upper threshold is exceeded or a lower threshold is exceeded for two consecutive periods. A four-state Markov chain models the resulting decision process. Steady state probabilities are derived for this chain and are used to obtain explicit formulas for the effectiveness and efficiency of the decision process. These formulas permit computation of the cost savings attainable by the warning zone method. Compared to other decision rules, the warning zone method is much simpler than the theoretically optimal Bayesian revision method, but uses more information than the Markovian control limit method. Numerical comparison of results shows that the warning zone method usually captures most of the available cost savings, even in cases where the Markovian control limit method does not perform well.     

Correction Constants for Present Values of Seasonal Cash Flows

In a recent Decision Sciences article, McMath (1990) developed the correction constants approach for eliminating the end-of-year bias in the present value of streams with subannual cash flows. A limitation of this approach is that it assumes subannual cash flows are level. In many types of businesses, subannual cash flows follow a predictable seasonal pattern and, consequently, a present value estimate based upon a level correction constant is biased. This article derives a general formula for determining correction constants for seasonal cash flow patterns, examines the direction and magnitude of the seasonal bias, and applies seasonal correction constants to a capital budgeting problem.     

On the Sequential Selection Problem*

Kwan and Yuan [13] considered the sequential selection problem in which an employer should arrange the sequence of interviews with job applicants to fill a position. In this note, it is shown that their selection problem would be alternately interpreted as an optimal search problem or, more specifically, a discrete search problem with a stationary target. A more generalized version of the ordering problem is proposed which explicitly considers the time value of money. Also, the optimality of the ordering strategy in the generalized problem is proven by the pair-wise exchange method, which is simpler than the induction hypothesis-based proof. The sequention selection problem is shown to be a special case of the general ordering problem where the discount rate is zero.     

RATIONING DISCRETIONARY ECONOMIC RESOURCES: A MULTIOBJECTIVE APPROACH

Prior research involving capital rationing has focused on capital budgeting issues: given a limited resource pool, which major long-lived fixed assets should be acquired? However, capital rationing can be extended to include not only new fixed-asset purchases but also expenditures for any other discretionary activity such as advertising, research and development, or maintenance. In this broader situation, measuring the contributions of certain discretionary activities to a single objective (e.g., maximize profits) or to multiple objectives often is hindered by a lack of reliable revenue estimates. This problem severely hampers the usefulness of traditional mathematical programming approaches to capital rationing. In this paper, we modify the usual multiobjective capital rationing procedures by treating each discretionary activity as an objective in itself. In this manner, we can mitigate the difficulties associated with revenue measurement problems and allow a decision maker systematically to explore the various trade-offs between competing discretionary investments.     

决策责任、原生性认知、资本预算项目恶性增资——基于模拟试验的证据

关于决策责任与恶性增资行为的关系,学术界一直没有统一的观点,归纳起来目前主要有三种不同的研究结论:一是对决策失败负有责任的管理者有显著的恶性增资倾向;二是对决策失败不负有责任的管理者也有显著的恶性增资倾向;三是没有发现决策责任与恶性增资倾向的显著关系.本文将决策责任、原生性认知和资本预算项目恶性增资三者放在同一研究框架内,在我国文化背景下,运用模拟实验方法,考察了决策责任对管理者投资选择(放弃投资还是恶性增资)的影响作用.结果表明:决策责任并不是导致管理者恶性增资的直接原因,它是通过影响管理者对项目的原生性认知而间接影响管理者的投资选择的.与管理者恶性增资行为直接相关的是管理者对项目的原生性认知.本文的研究还发现,当决策责任与原生性认知高度相关时,它与管理者的投资选择行为也密切相关.此时,通过更换对决策失败负责的管理者,可降低决策责任,达到抑制恶性增资的目的.本文的另一个研究结论是,对项目有较强的原生性认知是导致管理者恶性增资的根本原因.因此企业可在项目初始决策时,用制度性措施促使管理者多预见项目的风险,以降低管理者的原生性认知,可达到预防恶性增资发生的目的.本文的结果还表明,加大失调认知.可改变原生性认知与失调认知的权衡关系,抑制恶性增资的进一步恶化.     

HEURISTIC ALGORITHMS FOR CAPITAL-BUDGETING DECISIONS IN MULTIDIVISION FIRMS

This paper presents two versions of a heuristic algorithm to solve a model of the capital-budgeting problem in a decentralized multidivision firm involving no more than two exchanges of information between headquarters and divisions. Headquarters makes an allocation of funds to each division based upon its cash demand and its potential growth rate. Each division determines which projects to accept. Then, an additional iteration is performed to define the solution. More than one thousand examples were simulated resulting in an average relative error of less than one percent.     

中国的零基预算改革:来自某财力紧张省份的调查

根据零基预算在我国中部某财力紧张省份的实施情况,该文发现,2000年以来在地方政府开始推行的零基预算并没有发展成为一种基本的预算框架,基本的预算框架是一种控制预算。在控制预算的框架内,零基预算主要被运用于专项经费的决策。即使在该领域,由于财力紧张、政治体制的制约等因素,零基预算并没有改变预算过程和结果。     

企业预算管理的创新

自20世纪20年代以来,预算管理在公司管理中一直发挥着不可替代的中枢作用.20世纪80年代中期以后,公司所面临环境的变化动摇了传统预算管理得以运行的基础和前提条件,传统预算管理的缺陷逐渐显现,最突出的表现是预算与战略不协调.这种不协调的直接后果是公司战略无法真正地贯彻.在借鉴作业预算的先进思想的基础上,依据平衡计分卡,构建了基于公司战略的预算管理框架.基于战略的预算管理,为公司运用战略工具获取未来的竞争优势提供了一种有效的战略管理与控制方法体系.