Two ways to enhance the capital expenditure approval process
The capital expenditure approval process should serve as the cornerstone of capital investment cost control, but in reality it can be a cumbersome, frustrating component of the capital investment program for many companies. Commonly, the systems in place to manage Capex requests and approvals are decentralized and suffer from a lack of standardization, making it hard to track which projects are being proposed and approved, and from which corners of the business.
Those that wish to enhance their capital expenditure approval process by increasing transparency and enabling better Capex approval decisioning, can do so by implementing these two fundamental practices:
1. Centralize capital investment proposals
For many organizations, Capex requests and approvals are managed manually in a series of spreadsheets that are circulated via email for review and sign-off. While these types of processes may seem to support local Capex approval needs, they’re inherently inefficient and prevent the organization from establishing a clear sense of which projects are in the full capital investment pipeline and how the projects compare to one another.
Centralizing the capital expenditure approval process within a cloud-based application that allows for mobile approvals and customizable approval thresholds across business units helps to ensure that project approval status can be easily monitored by those across all necessary levels of management.
2. Allow for easy capital project prioritization
Getting all of your proposed capital project ideas into a single, centralized application – while important – is only the first step. In order for your capital expenditure approval process to power informed, effective decision making, the application you use must take into account each capital project’s projected return on investment.
After all, without a project’s profitability index (PI), net present value (NPV) or payback calculated, how can you truly be sure a project is worth undertaking?
Beyond merely displaying each capital investment’s projected KPIs, any new Capex application must allow you to easily rank and prioritize proposed capital projects, while taking into account the impact of approving or rejecting the project on the available capital budget. In gaining a deeper understanding of how relatively attractive each project is across your organization, as well as whether or not you have the available funds, you’re then positioned to approve or reject a project in an effective and informed way.
To learn about even more ways to improve your capital expenditure approval process, download our executive briefing, Key Elements of an Effective Capex Approval Process.