Which statement best describes the relationship between the Capital Improvement Program (CIP) and capital budgeting?

• A. CIP is unrelated to budgeting decisions
• B. Capital budgeting prioritizes CIP projects and ensures funding and financial viability
• C. CIP is a marketing plan for the airport
• D. Capital budgeting only considers operating expenses

Answer: (B)

Understanding the relationship between a Capital Improvement Program (CIP) and capital budgeting starts with what each represents. A CIP lays out planned major capital projects, their estimated costs, expected timing, and potential funding over several years. Capital budgeting is the process of evaluating and selecting those long-term investments, deciding which projects to fund given financial limits, and ensuring the money set aside will actually be available and financially viable.

In practice, the CIP provides the project ideas, timing, and cost estimates that capital budgeting uses as input. The budgeting process then prioritizes those projects, assigns funding, and assesses financial viability—checking things like cash flow, funding sources, debt capacity, and expected benefits—so that only feasible projects move forward. So, capital budgeting actively prioritizes CIP projects and ensures they are funded in a way that makes financial sense for the organization.

Why the other ideas don’t fit: a CIP is not a marketing plan, since it focuses on physical infrastructure, not promotion. And capital budgeting isn’t limited to operating expenses; it concentrates on long-term capital investments, with operating costs handled in the operating budget rather than the capital budget. A CIP is also not unrelated to budgeting decisions—it's a key input that guides funding and prioritization decisions within the budget.