Quantitative factors can be accurately measured in numerical terms, while qualitative factors are measured subjectively. The capital expenditure decision is the process of making decisions regarding the investments in fixed assets, productive equipment, facilities, investments in labor or assets purchased for profitable appreciation and an expected return on investment. Therefore, it refers to long-term planning for proposed capital expenditures and includes in increasing of long-term funds and their utilization. The key function of the management accountant is to choose the most profitable project for invest¬ment. This task is very important because any action taken by the management accountant in this area will impact the working and profitability of the organization in future.
How qualitative considerations impact the decision making process
Qualitative considerations will influence capital expenditure decision process in the organization. These include the aims and objectives of the firm, current and expected state of the economy, possible impacts on image and reputation, environmental and ethical considerations, and past experience of the organization.
However, qualitative factors cannot be measured as a number and they represent either a negative or positive force affecting the company. But some of these qualitative factors will give an effective ways in determining the good capital expenditure decision. For example, if the company open new office branch in another city. By doing that, it may change the way of communication and information flow between teams and reporting relationships. It will give positive and negative effect to the employee morale.
In taking qualitative considerations, Management accountant should identify a set of qualitative factors and then decide which of these factors will add value to the organization, and which of these factors decrease value. Then, Management Accountant should determine their relative importance, the qualities that can be analyze and categorized as having a positive effect, negative effect or minimal effect to the organization. By understanding these types of qualitative factors will give a better capital-investment decisions in future.