Essay Example on Capital Budgeting: Choosing the Highest Returns on Investment

Introduction

Capital budgeting can be termed as a method of analysis and comparison of the considerable future investments as well as expenditures to predict which of the investments are worthwhile. It is a process applied by companies, individuals, institutions, and governments to determine the capital projects that will bring forth the highest returns compared to the funds invested on the same project. Its potentiality of possible returns that ranks each of the projects, and the institution can choose the projects they can invest in first (Sandstrom et al., 2016). Capital budgeting in higher education refers to the process of examining the long-term budgetary process, as witnessed by the institution of higher learning in what is becoming a gradually complicated education environment.

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Uncertainty introduces an individual, government, or institutions to a significant state of being unsure about something. It can also indicate situations where things are undecided, doubtful, or unknown in some way. Uncertainty may express itself in several ways and forms, and in many cases, one form of uncertainty will introduce another one. For example, in education, if an individual doubt the career they want to get into at the institution of higher learning, they will doubt the performance, completion, political factors and the overall benefits after completion including employment or innovation (Sandstrom et al., 2016). The uncertainty regarding the aspects of employment, with increased shrinkage in industries due to the artificial application intelligence (AI), pandemics, and market changes, have had an impact on significant decisions, especially of capital allocation and even drift in nationalism. This further creates a level of education and social uncertainty and threatens almost every aspect. This paper will focus on the uncertainty impact on capital budgeting decision making in of higher education.

Political Uncertainty

Political uncertainty can be termed as the economic risk in cases where the future direction of a particular government policy is uncertain, resulting in risk premia and causing individuals to stop or delay any expenditure on investments until such uncertainty is resolved (Pastor & Veronesi, 2013). At a time of heightened political uncertainties, a majority of the institutions of higher learning are worried about the future. The changes in government policies and the funding arrangements can be a bigger concern for the leaders of these institutions.

Politicians usually develop policies, including funding policies and education policies. Questions may arise about how these policies affect the institutions and the institution budgetary processes and planning. According to various education analysts who form part of a panel discussion on the inaugurate the College's new Education Policy and Social Analysis (EPSA) Department, these education policies affect almost every aspect of the education including funding policies, syllabus and also the number of students intending to join the institutions (Pastor & Veronesi, 2013).

The political philosophy which controls the government of a state often determines the type of regulations and administration the education system will have and is always behind the features of the education system and how it works. As a type of political philosophy socialism identifies the property as the method and basis of economic structure on a particular country which results in the concentration of legal and civil power in the hand of the rich. Socialism, in many instances, advocates for the nationalization of the factors of productions, meaning the workers own nothing, and the owners do nothing. Any change in such a system can only be achieved by adjusting the education system via the state mechanism with full control of education and the curriculum meaning the public must be trained by the state and the state institutions. In these cases, all the details of the curriculum are directly under the control of the government and revolve around the functional training of the population. This curriculum is also inclusive of the research and scientific training for social purpose

Good examples of the countries which have introduced a socialist education system are Cuba and Bulgaria, with the typical characteristics such as the monopoly of state control over education in and outside the schools and have a greater emphasis on the science subjects. In such states, people's freedom and the idea of tolerance are not accepted (Kenway & Bullen, 2000). In countries like France, though, education is centralized based on its political philosophy. Everything in France related to education is controlled by the central authority, which is the government. In such socialist states, capital budgeting by the institution is not necessarily done by the institution rather than the central administration, and it is highly regulated. The uncertainty is only apparent in situation or regime change since these institutions do not have nay input. They purely depend on the regime goodwill towards education (Kengatharan, 2017).

In cases like the United States and states like Japan, education is highly decentralized and is often based on democratic influence and the capitalistic political systems of these countries. This also means that there is a close association between the country's character and the education system (Kengatharan, 2017).

How the institutions of higher learning plan their budgeting is highly dependent on the political system and decisions implemented by the regime in power. There exists uncertainty with each change in administration since every leader has a set of ideologies they want to be implemented. In a socialist system, the government makes all the decisions relating to the education and academic disbursements. This might be an advantage long as the regime in power understands the role of education and willing to support it fully. The institutions are, therefore, just charged with the responsibility of producing quality. However, this might also be negative since the system may underplay the education sector leading to reduced funding to its core areas.

In a capitalistic state, however, these institutions are highly democratic and owned by private individuals also. However, the government in place plays a critical role in the capital budgeting of these institutions. These ideologies temporarily or permanently change the governance, funding, and also economic performance (Kenway & Bullen, 2000). The uncertainties revolving around each affect how the institution runs, and plan their expenditures since, with good governance means more individuals will be yeaning to enroll; thus, the expense of the infrastructure can be higher. Additionally, institutions having may learners mean they have more monetary resources thus managing to finance their budgets sufficiently. Political instability within or without the institution in the democratic states however present a substantial level of impact in the capital budgeting since no one is able to predict how frequent such may be and for how long. Such instability may also lead to delayed implementation.

Fiscal Uncertainty

Changes to the taxation government expenditure and borrowing, which aim to influence the level of economic activities for the government to achieve some of its main macroeconomic goals, can affect the capital budgeting decision in higher education. The policies only works by the government changing the taxation levels and expenditure for some time, and the financial aspects that the government decides to take typically depend on the state of the economy at that particular time. A good example might be, during a recession, the economy can be stimulated by higher spending and reduced taxes for the government to inject money into the economy. As such a point, people have more money to spend, meaning, a majority may join to pursue different interests. This, in turn, means that institutions will have more money available for spending, translating to better planning and sufficient allocation (Dowd & Shieh, 2014). The uncertainty arises when such a policy leads to inflation, meaning, even with the high inflows, the available budgeting can only do as much as none.

Technological Uncertainty

Technological uncertainty means the probability of attaining specific goals of objectives or how to achieve such cannot be known in advance or based on the experience or the technical means available. As such no one knows how the future of technology will be affecting educational infrastructure, and how the long-term budgeting for such can be achieved with accuracy. May be in future, physical institutions and lecture halls will no longer be necessary, curriculum as is, and many other aspects .The technological era has introduced and opened a brighter horizon for the educational infrastructure by offering a panoply of equipment through which instructions can be improved. The computer revolution has introduced possibilities such as greater access and opportunity to learning and also teaching larger numbers of learners in ways that allow individuals to progress towards the learning goals given the need for the alternative style of learning (Howarth, 1991). However, in education, the new and advanced technology often lacks integration in most institutions despite it offering exciting prospects. The observation that the society finds itself inextricably entwined with technology and affected by the various adjustments related to technology remains as relevant as it has always been.

The implementation is highly related to innovation and invention. The implementation may, however, be difficult because there exists systematic resistance, time, funding, and apathy in integrating design. The system reluctance is often related to issues like lack of knowledge, fear of replacement/unemployment, and application. The resultant lag, which occurs between the technological invention and its acceptance, represents a cautious, conservative approach to the application of technology. The leaders and the policymakers in the education sector have anxieties about integrating these skills and incorporating structures in the educational environment and fully accommodating this technology, and to press to upgrade such technology skills among the lecturers further complicates the problem.

As technology outdistances learning, in periods of rapid technological advancement, the apparent gap between the technological advancement and invention, and the utilization by the education system becomes more pronounced. If anything positive can be said about the gap is, the policymakers have more and sufficient time to formulate a planned approach for such integration into the curriculum. The issue with this kind of uncertainty and gap is, technology is upgrading at a fast rate, meaning before the policymakers and the right budgetary allocation can be made about the current one, another technology which is more improved and more efficient might already be existing. Alternatively, the question of how large the gap should be can only be phrased in terms of whether the education system can be developed in a widescale, and planned approach to integrating these innovations more constructively into the curriculum.

Technological change can involve anything, including new research and learning methods. Such changes introduce newer and efficient ways of doing things, including efficiency in the use of resources. A good example might be the development of software and education courseware in the institutions, which should succeed because they represent more effective and efficient ways of using the pr...