Stryker: Net Present Value and Capital Budgeting Process

1100 WordsMar 4, 20145 Pages
1. What are the missions of CERs and the capital budgeting process at Stryker? Mission: Standardize and formalize the capital budgeting process. The CERs and capital budgeting process were implemented so that a more formal process of requesting capital expenditure and approving them would be applied. All this was put in place to support cash flow targets and maintain Stryker’s 20% growth benchmark. To what extent have they been shaped by elements of corporate finance theory? They are heavily influenced by corporate finance theory All submissions are required to show the net present value (NPV), internal rate of return (IRR) and payback period. They need to highlight the project’s anticipated outgoing cash flow and earnings…show more content…
3. Given Stryker’s strategy and its long--‐run goals, what modifications to the current system— analytical, organizational, and/or procedural—would you recommend? Develop some specific proposals and explain how they address specific problems. Procedural Modifications and Recommendations: The CER system was developed to outline specific requirements of a project and create rigorous documentation of the projects. As well, the process was put into place to enable a more structured review of these proposals between employees and management. The implemented a two week review timeframe to receive and review the documentation. These processes while good had several flaws: The committee was not holding regular meetings and as a consequence “submission and review” process was not being completed on time. As they were meeting virtually this did not facilitate good conversation/discussion on the proposals. For insignificant “no brainer” projects there was excess documentation, decreasing efficiency and productivity. To improve the efficiency of how the Capital Committee reviews and approves proposals they need to establish a scheduled face-to-face session (perhaps on a weekly basis) to receive and review all CERs. This will give

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