Capital asset management process: the case of Hose & Fittings Corporation

To develop a more effective, long‐term‐oriented capital asset management process for capital project evaluation

Relying on a cash study format, the weaknesses of the traditional capital budgeting process are examined. The proposed capital asset management process is contrasted with the traditional process with respect to several aspects of long‐term resource management. Flow‐charts and evaluation matrices are presented.

The capital asset management process offers significant improvements over the traditional process. First, it links various functions that trigger capital requirements. Through an actual versus plan measurement, capital plans become more accurate and predictable. Forecasting beyond one year also enhances the planning and management of resources. Second, the process promotes a more accurate evaluation of costs and benefits of capital projects. The suggested evaluation techniques include detailed qualitative analysis, real option and EVA analyses, and applying project/division costs of capital in place of a company cost of capital.

The capital asset management process provides guidelines to justify and manage capital expenditures in a systematic manner for divisions and product lines within a company. For an effective application, the process should be established across all corporate levels so that top management and project managers have a clear understanding of the process and its importance with respect to a capital proposal's linkage to long‐term strategic goals.

This study provides a comprehensive overview of the traditional capital budgeting process based on an actual company case and presents key drives and evaluation techniques in the capital asset management process to effectively manage firms' long‐term capital assets.