Making a decision on capital expenditure is not about consider the financial factors only, but the non-financial or qualitative factors should also be considered. Understanding the qualitative factors will help the company in making a good capital expenditure decision. Therefore, there are several qualitative factors that should be considered in the capital expenditure decision. The factors are:
1. Environmental Impact
Nowadays, society is more concern about the environmental issues and they want to protect the environment, so they are more prefer on a “green” products such as organic products. Therefore, companies should not invest in an equipment or build a factory that will affect the environment, as this can have a long-term positive financial impact on the company which can lead to creating a greater loyalty from existing customer and acquiring a new customer. How the views of society will change over time is a key qualitative consideration in capital expenditure decisions.
2. Employee Morale
Employee morale is one of the qualitative factors that should be considered before furthering on capital expenditure decision. Companies can spend money on the capital improvement such as purchasing a new office furniture so that it creates a better work environment by having a functional, attractive and comfortable place to work which can boost the employee morale and lead to greater productivity. The quality of the office environment is also important to create a positive image to customers and vendors who visit the office.
3. Government Regulations
Before making any decision on purchasing any equipment for producing a product or provide a service, a company should consider the relevant law requirement imposed by the government as this is one of the qualitative factors that should be considered. The company should search for another alternative to produce the products or provide such a service if the government forbid because it against the government regulation or standard. The company should take into consideration all the government regulations before making a capital expenditure decision as this will affect the company’s performance and returns in the future.
4. Product or Service Quality
The quality of capital resources can directly affect the quality of goods or services. Capital investments can be made to increase a company’s capacity to produce goods or deliver services. Therefore, a manager should strike a balance between cost and quality in capital resources which means by making the right decision to purchase quality capital resources in order to maximize the investments’ cost efficiency. For example, purchasing the cheapest vehicles for on-site technicians can lead to service interruptions due to vehicle breakdowns which can affect the company’s performance and revenues.