Recognizing that it may be in managers' best interests to be overly optimistic when proposing projects,how might firms effectively control this impulse?
A) Employ capital rationing.
B) Discontinue investment proposals.
C) Fire managers after their first mistake.
D) Fund all project proposals.

Question

Quizplus · Accepted Answer

Employing capital rationing can help control the impulse to be overly optimistic by limiting the amount of available funds for project proposals. This encourages managers to carefully evaluate and prioritize their proposals, resulting in more realistic and feasible projects being selected for investment. Discontinuing investment proposals or firing managers after one mistake can create a negative culture of fear and may discourage managers from proposing innovative projects altogether. Funding all project proposals can lead to resource depletion and may result in the firm investing in unrealistic or unprofitable projects.

Recognizing That It May Be in Managers' Best Interests to Be