DECENTRALIZATION OF THE CAPITAL-BUDGETING AUTHORITY

A conceptually new first-cut decision-aid for optimal delegation is introduced. It takes a subjectivek approach to capital budgeting, from the delegator's perspective. A model captures the tradeoffs between the cost of centralized (duplicated) review, and the opportunity cost and risk of having (otherwise) ″unacceptable″ projects. Two explicit limits to optimal decentralization are identified to help headquarters (HQ) to select the kinds of proposals that should be: (a) Approved and executed by divisions without HQ review. (b) Rejected by divisions without HQ review. (c) Submitted to HQ for a centralized review. A numerical example is presented to demonstrate the process.