On the other hand as you grow into a larger organization, a formal capital appropriation process is created. This involves documentation of the intended use, description of the assets to be acquired, time frames for the investments and benefits to be gained. A financial analysis is a required part of the capital appropriation request.

The methods used to compare and evaluate capital investments are based on projections of future revenue streams and a calculation of some combination of:

Internal Rate of Return;

Net Present Value (NPV);

Breakeven;

Economic Value Added (EVA);

Economic Profit Created (EP);

Risk-Adjusted Return on Capital (RAROC).

This approach rewards the best analysts, politicians and sycophants, but not the best projects. The most innovative, high-potential projects are seldom easy to analyze and quantify. Yet these are the very ideas that turn out to be outstanding but only if they get funded.

With traditional allocation, the capital tends to be spent either protecting the past or perfecting the present - with precious little left for funding the future. For reasons of personal or organizational pride, differing goals or political power; appropriation requests often do not match business goals. Regardless of there being good intentions, competing executives or organizations will scuffle for scarce capital. The resulting conflicts can turn ugly.

Authority Level for Approving Budgets
 In some businesses, the authority level for allocating budgets is high - assuming the funds have been budgeted. This means there is a chance that good, innovative ideas might receive financing. In centrally-controlled businesses, spending approval levels are kept low. This forces the managerial review of most investments.

Appropriation requests go up the ladder to be approved by successively higher levels of management. However, the higher one goes, the less informed the management tends to be. The originator's chain of command includes gatekeepers from finance and accounting. Other functions affected often have sign-off rights as well. This creates a time-consuming, bureaucratic and often contentious process that wrings the creativity out of any proposal. This is replaced with conservatism, caution and an inability to approve funding.

After running the divisional bureaucratic gauntlet, the appropriation goes to the corporate capital appropriation committee, where it is subjected to more scrutiny by even less-informed people. This review is supposedly based on alignment with corporate strategies, return versus competing capital needs, and the requesting unit's budget. The larger the organization, the more levels there may be. The process varies surprisingly little from business to business.

When small businesses grow rapidly, capital allocation is efficient and effective. It involves only a few well-informed people. As the business develops or is acquired by a larger entity, it implements a more formal capital approval process with higher authority levels. While this is considered necessary, it is noticeably slower and less efficient. The successive layers of capital appropriation processes and committees can slow down or even kill most creative projects and divert capital to safer, less rewarding uses.