Review of Quantitative Finance and Accounting, 7 (1996): 97-112 9 1996 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands. Capital Budgeting with Multiple Criteria and Multiple Decision Makers WlKIL KWAK Department of ProfessionalAccounting, College of Business Administration, Universityof Nebraska at Omaha, Omaha, NE 68182 YONG SHI College of Information Science and Technology, University of Nebraska at Omaha, Omaha, ICE 68182 HEESEOK LEE Department of Management Information Systems, Korea Advanced Institute of Science and Technology, Seoul, South Korea 207-43 CHENG E LEE Finance Department, School of Business, Rutgers University, North Brunswick, NJ 08903 Abstract. In this article, we propose a model that incorporates the preferences of multiple decision makers into a decison-making processusing (1) The analyticalhierarchyprocess (AHP); and (2) multiple criteria and multiple constraint levels (MC 2) linear programmingin a capital budgeting context. Our model can foster strategic and nonfinaneial factors that are important in the capital budgeting problems of the current business environment. The two-phasedsolutionframeworkproposedin this article is sufficientlyflexible to reach a compromiseamong decision makers. Our method also facilitatescollectionof decision makers' preferencesto minimizesuboptimiza- tion of overall company's goals. In addition, applicationof AHP to derive weightsto decision makers' preferences for resourceavailabilitydecreases the solutioncomplexity.All these characteristicsrepresent a significantimprove- ment compared with previous linear or goal programming approaches to capital budgeting problems. Key words: capital budgeting, multiple criteria, multiple decision makers I. Introduction Capital budgeting is not a trivial task if a firm is to maintain competitive advantages by adopting new information or manufacturing systems. A firm may implement innovative accounting systems such as activity-based costing (ABC) to generate more useful informa- tion for better economic decision making in the ever-changing business environment. ABC can provide value-adding and non-value-adding activity information about new capital in- vestments. Investment justification in the new manufacturing environment, however, requires a comprehensive decision-making process that involves competitive analysis, overall firm strategy, and evaluation of uncertain cash flows (Howell and Schwartz 1994). The challenge here is to measure cash flows as well as intangible benefits that these new systems will bring. Furthermore, conflicts of goals, limited resources, and uncertain risk factors may complicate the capital budgeting problem (see, Hillier (1963) and Lee (1993) for details). These problems of conflicts of goals among decision makers and limited resources in a