Risk analysis in capital budgeting: Barriers and benefits

The empirical literature suggests that one reason for the lack of widespread acceptance of risk analysis methods by firms in assessing capital investment projects is that it is marred by some inherent and practical problems still to be resolved. The objective of this paper is to examine U.K. managers’ attitudes towards and practices of risk analysis, the barriers that they encounter when introducing risk analysis, and their perceived impact and overall evaluation of using risk analysis. It reports the findings from a comprehensive U.K. survey which covered a wide range of risk analysis implementation issues in capital budgeting. Some possible suggestions to bridge the gap between theory and management practice are discussed.