What is meant by the “option” inherent in a capital budgeting decision?

Every capital budgeting project takes place over a period of time during which a company will face many choices. Examples of these choices are to expand or contract the investment, to replace equipment with newer technology part-way through the project, and to abandon the project altogether. Each of these choices is an option, the opportunity to take whatever course of action is best at that time. By investing in a capital budgeting project, therefore, a company buys not only the immediate project but all subsequent opportunities that derive from it.