Capital Budgeting Implementation by Public Sector Construction Firms in Tanzania’s Housebuilding Industry: An Exploratory Study

Abstract

This exploratory study investigates the implementation of capital budgeting practices (CBP) by selected public-sector construction firms (PSCFs) in Tanzania. This investigation seeks to assess the extent, to which such practices are used for effective investment decision-making, with a particular focus on the country’s housebuilding sector. A case study research design was adopted to collect data from five Tanzanian PSCFs, serving as cases through a mix of questionnaires, interviews, and document reviews. The emergent data was analysed using thematic analysis. An appreciable level of CBP implementation was observed in all the cases. The Internal Rate of Return (IRR), Net Present Value (NPV), and Payback Period (PBP) capital budgeting techniques (CBTs) were observed to be mostly used by these PSCFs, while sensitivity analysis was widely deployed for risk mitigation. The influence of top management in decision-making, political influence, and lack of advanced software were some of the implementation challenges identified. The findings contribute to the elucidation of CBP implementation praxis in the public sector organisation context in developing countries, as it relates to the housebuilding industry in Tanzania’s unexplored context. The study proves to be a valuable resource for public sector entities in developing countries intent for facilitating effective investment decision-making about infrastructure procurement, and it contributes to improving knowledge of CBP implementation, consideration of risk mitigation factors, and post-project implementation audits by public sector firms.