For effective Capex approvals, context is king
Organizations of all sizes commonly suffer from a lack of project context when they set out to optimize their portfolio of capital investments. A limited understanding of each project’s relative attractiveness (i.e. its strategic fit and/or financial impact relative to others) essentially leaves a company flying blind, putting investment decisions in uninformed hands.
There isn’t necessarily one root cause of this problem, but it’s most frequently a symptom of a poorly structured system of management where communication and the relaying of critical project information is not effectively enabled.
So, what can be done to avoid this lack of context?
As capital project requests flow in from different business units across an enterprise, there are several immediate questions a diligent organization should pose:
- Do we have the budget to undertake this investment?
- How relatively attractive is this project compared to others out for approval?
- What impact will approving this investment have on the portfolio?
Establishing a clear sense of your organization’s true capital position is the first step towards making effective Capex approvals and optimizing your portfolio. Asking these questions for every proposed investment will enable you to determine this position and proceed accordingly.
To learn more about making Capex approvals in the context of your current capital position versus budget and relative to all the other competing alternatives, explore our latest Capex approval tool, Finario Converge.