Relevance of Capital Budgeting to the Public Sector Organization

Relevance of Capital Budgeting to the Public Sector Organization


Relevance of Capital Budgeting to the Public Sector Organization


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Abstract on Relevance of Capital Budgeting to the Public Sector Organization

Relevance Capital Budgeting to Public Sector in an Organization is the process of analyzing potential investment for the firm. Capital budgeting decisions are probably the most important ones financial managers must make. Capital budgeting decisions usually involves substantial expenditures on new assets. These decisions are particularly important because the firm loses much of its flexibility by locking into project and because budgeting decisions define the firm’s strategic direction.

Capital Budgeting in Nigeria local government is very vital and must be approach with all sense of diligence. The rate of economic development in the Nigeria local government has been relatively slow due to continuing whiting down of their powers by the state government and the state government had continued to encroach upon what would normally have been exclusive preserves of local government and constantly there has been a divorce between the people of governments at their most basic levels.  The project is intended to create awareness in Capital Budgeting in Nigeria Local Government.  Also the general reader will find it educating and informative.  The need for this study arises from the variation in Capital Budgeting in Nigeria Local Government that has been noticed and this research work hoped to improve the standard and in order to achieve this, project has gone into so many past works of authors and related literatures.

This study is divided into five chapters covering the wide scope of compensation management.  Chapter one deals with the general focus of the study.  Chapter two tries to review various concepts and theoretical strands that are relevant to this study.  In chapter three, attempt was made to look into the methodology of the study.  Chapter four endeavour to present, analyze and summarize the data collected in the course of the study.  The conclusion of the study is in chapter five where general Summary, conclusion and recommendations were made.  These were considered relevant to improve the Relevance Capital Budgeting to Public Sector in an Organization.

In the analysis of the research work it was concluded that Capital Budgeting has a great impact to public sector organization.


Chapter One of Relevance of Capital Budgeting to the Public Sector Organization



The term ‘Capital Budgeting’ occupies or plays a strategic or pivotal role in every organization, be it public owned organizations or privately owned organization. To this extent, the importance or role of capital budgeting cannot be undermined because of its importance in financial decision.

Capital Budgeting has been defined in different ways but it means of the same or relatively the same by different authors, scholars and schools of thought.

According to the Institute of Cost and Management Accounting, Capital Budgeting as a financial and quantitative statement prepared on capital expenditure prior to a definite period of time of the policy to be pursued for the purpose of attaining a given objective.

In the word of G.C Philipalys ‘Capital Budgeting’ is concerned with allocation of firm’s care financial resources among the available market opportunities.

In his own view, Lynch explained that Capital Budget-ing consists in planning, development of available capital for the purchase of maximizing the long term profitability in the concern.

In general view, Capital Budgeting involves all the processes in the investment of resources in the long term projects in anticipation of making profit or providing essential services to the public acquisition of land, building, machinery and other capital projects.

More often than none, the resources of a nation or society are not allocated to its component by the market forces or mechanisms (prices) but by the public decision making means. The principles that guide the allocation of the public resources ensure the resources are distributed in such a way that the objectives of the public are accomplished through efficient and effective budgeting system.


This research work will focus primarily on investigating and point-out the problems facing public owned organizations for its inability to put in place efficient allocation of resources, equitable distribution of income by the use of tax and stabilization of economy by the use of capital budgeting and how it affects their service delivery to the people, high lost an inadequate capital, poor human resources, unpredictable social and economic factors bad policy formulation, sharp practices.


This research study will endeavor to show how Public Sector can go about putting its Capital Budgeting in place to bring desired results to the people. Also, to contribute to the body of knowledge which will be beneficial to the society at large.


(1)    H0: Capital Budgeting can not improve allocation of resources through spending and policy implementation.

H1: Capital Budgeting can improve allocation of resources through spending and policy implementation.

(2)    H0: Capital Budgeting is not efficient in distribution of income through tax and benefits.

H1: Capital Budgeting is efficient in distribution of income through tax and benefits.

(3)    H0: Capital Budgeting can not stabilize economy by the use of fiscal and monetary policy.

        H1: Capital Budgeting stabilize economy by the use of fiscal and monetary policy.


(1)    Does Capital Budgeting improve allocation of resources through spending and policy implantation?

(2)    Does Capital Budgeting at efficient in distribution of income through the tax and benefits.

(3)    Does Capital Budgeting stabilize economy by the use of fiscal and monetary policies.


Questionnaires are hand-delivered to the selected local government.  Offices for the purpose of the study.  This is to ensure that they got to the respondents.  They were been given enough time, and reminder calls were been made after a while to be able to gather up every questionnaire with this making up to two weeks duration. 


The data collected were analyzed using the descriptive and inferential statistics. The entire copies of questionnaire will however be collected and analyzed based on simple percentage.  The hypotheses formulated above will also be tested with chi-square statistical technique, which is an estimation of hypothesis testing, normally used when comprising the observed distribution of data with the expected distribution. 

The chi-square distribution is refereed to as “goodness of fit text”. Here is the formula below:

X2 = ∑ (fo-fe)2



Fo    =  Observed Frequency

Fe    =  Expected frequency

To calculate the expected value, the formula is also given as:

∑rc    =  Row Total x Column total

                        Grand Total


This research study will try to point out what is obtainable in the Public Sector in terms of Capital Budgeting practices. This research work will limit its scope to capital budgeting in Ikorodu Local Government.


Ikorodu local government is one of the most stable of all local government in terms of its political boundaries. It has six autonomous communities namely:- Ibeshe, Igbogbo, Ijede, Ikorodu, Imota and Ipakodo. Ikorodu Local Government is bounded in the east by Epe local government, south by lagoon in the north by Remo Local Government of Lagos State, and in west by Shomolu Local Government. The local government is located at the upland area of the topography has such drainage within this area is very effective on the slopes and through several rivers which flow into the stretch of the Ogun-Majidun river valleys is swampy.

Infrastructural Facilities

There are many of this in Ikorodu to start with water transportation is effectively utilized as more than seventeen communities are accessible by water in the L.G.A. various water craft ply between Ikorodu and Lagos (Ebute Ero) and even beyond Epe and Mushin area of Ondo State across the Lagos lagoon. Ikorodu township has a lighter terminal.




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