The Driverless Car And Capital Budgeting

With any capital budgeting process, estimates of sales, costs, etc., are important, as is the recognition that there can be significant external forces that affect your estimates. A recent article in Forbes discusses the side effects of Google's driverless car. For example, governments will lose revenue from the elimination of speeding tickets, red light violations, and other traffic tickets, but may save since fewer police officers will be needed to oversee traffic violations. Gasoline sales would plummet, hospitals would have fewer patients, and auto and health insurance premiums would fall drastically since there would be fewer accidents. In any capital budgeting process, you should be aware of external factors that could affect your projections for a project since these factors can affect your analysis. Of course, you also need to be aware that there may be disagreements in these projections. For example, the article assumes that if driverless cars do become available that auto sales will fall since there will be a fleet of cars used for everyone, not private ownership of an individual car as is the current model. There is a good chance that the fleet option is idealized and that even with driverless cars, there will still be a large number of individual owners. In any case, in the textbook we discussed using scenario analysis for base-case, best-case, and worst-case projections. Including external factors such as the possible changes caused by driverless cars is another scenario that could be examined in any industry affected by the driveless car.