Capital Planning

  • AI: A Primer for Corporate Finance

    Just a few years ago, artificial intelligence (AI) was a brand new technology that stoked excitement and fear. Concerns of a terminator-induced armageddon were just as common as predictions of stunning new technological breakthroughs.

    Since then, AI has transformed from frontier technology to practical business tool. While many are aware of its well-publicized feats, such as beating humans at chess and solving the protein-folding problem, AI now has much more practical uses. It can take on practical problems like natural language processing (NLP), demand forecasting, and analysis of large datasets.

    CFOs are taking notice. According to a Deloitte survey, 97% of CFOs plan to employ AI in the near future, but only 2/3rds currently use it. In finance departments today, this technology is mostly deployed in the back office to detect anomalies during audits and automate repetitive processes.

    But the back office is just the beginning.

    Once companies have a good handle on AI, they can start to feed it data to generate predictive analytics. Predicting how consumers are likely to respond to a new product, which debts are unlikely to be paid, and where risks are likely to emerge will be a game-changer.

    In short, AI’s time has come.

    Starting out small

    Like with any new tech, it pays to walk before you run. PWC found in its recent study that CFOs who set clear priorities, work on governance structures with employees, and start small tend to have the best results. 

    A typical first step is to get a handle on large datasets. Machine learning (ML) is a subset of AI that’s relatively easy to implement, and can recognize repeating patterns in data. For instance, mobile payments company Square uses ML to better detect fraud at its terminals, building upon thousands of data points to improve its recognition of hostile actors.

    Source: PWC

    Once ML apps are running smoothly and generating useful results, the next rung of the ladder opens up. Instead of simply identifying past trends, more advanced AI can start to explain why those trends emerged in the first place. For example, manufacturers have leveraged AI capabilities to respond swiftly to the wide spikes in demand since COVID.

    The pinnacle of AI in corporate finance is its predictive power to answer a few key questions—such as what’s likely to happen in the future, and how can my organization best prepare for it?

    Leverage multiple datasets to answer questions about the future

    Prescriptive and predictive analytics sit at the top of the AI food chain. Being able to model what might happen (prescriptive), then determine how to make a desired outcome actually take place (predictive) are the biggest value-adds from AI at this point.

    In finance, identifying the most impactful KPIs and figuring out how to meet them is imperative. AI can scan historical data to see how likely KPIs are to be met, then suggest optimal courses of action for getting there.

    Let’s say you’re a personal protective equipment (PPE) manufacturer projecting future sales. After collating past sales data and feeding it through a predictive analytics model, you see that sales are projected to stay flat for the next five years.

    Armed with that data, you can then turn to prescriptive analytics to see how you can improve that growth rate. The AI model leverages internal and external data to recommend several changes, including a product change to reflect changing consumer tastes. This is enabled by customer survey data, A/B tests, and market research.

    The key enabler to these advanced functions is “clean,” relevant data. Unstructured data requires a significant amount of time to clean and stage for analysis, leaving less time for generating insights.

    Consolidating Opex, Capex, market research, and other data within your company gives AI the best opportunity to make useful predictions. But this doesn’t mean your ERP and all other apps in your finance stack need AI capabilities of their own.

    Rather, by collecting data across all these systems, an AI solution can leverage the combined dataset. For example, Finario Predict can help you make better capital planning decisions by using historical project data to forecast likely outcomes of future projects.

    Walking before you run with AI doesn’t just help increase adoption at companies. It also ensures that they develop good data governance to enable more advanced AI capabilities such as robotic process automation (RPA).

    Uses for AI in corporate finance departments today

    Essentially, with RPA, a company first identifies a workflow that sets up well for automation. Then, with the help of solutions specializing in RPA, it sets up a robot to run the process. Once the bot is working well for a single process, additional tasks can be added.

    Take Deutsche Bahn, for example. As the national railway company of Germany and one of the biggest transportation companies in the world, it serves over 2 billion passengers per year. That means rows upon rows of incident reports that need to be collated across applications and processed by the corporate team.

    Employees were spending a significant portion of their time on the repetitive tasks of data entry and synchronizing data across systems. RPA company Cloudstorm was able to implement a robot that automatically entered relevant data and synced it across various systems. Workers reported better morale, and executives enjoyed fewer manual data entry errors.

    Aiwozo is another RPA company helping businesses get started with AI. One of its success stories includes a retailer that struggled to process invoices in a timely manner, due to the variety of formats they received.

    The solution to this issue was an AI program that used Optical Character Recognition (OCR) technology to convert the invoices to a standard format. The standardized data was then fed into Aiwozo’s ML model to extract relevant information, providing training data for a more advanced AI program.

    The resulting bot reduced the workload for employees and generated useful insights not available before the AI solution.

    Don’t get left behind

    The AI revolution in corporate finance is here. Back office automations are great for eliminating tedious work, but harnessing data to make better predictions and decisions is where AI will unlock the most value.

    Building a rock-solid business case is key … as is having a complete dataset. For finance, that means not just Opex and treasury, but Capex – with deep and detailed project-level data. With that single source of truth, and the capabilities of AI to leverage it, companies can create a significant competitive advantage in its operational efficiency, return on invested capital, and overall marketplace performance.

  • Stock Buybacks vs. Capex: How Macroeconomics Frames the Debate

    Capital expenditures among companies in the S&P 500 have been growing at a faster pace than stock repurchases for the first time since the first quarter of 2021,” according to the Wall Street Journal.

    In the age-old debate around returning capital to shareholders versus investing in the future of the business, does this represent a fundamental shift?

    Probably not. A look at macroeconomics – inflationary pressures, supply chain challenges and the like – and legislative policy such as the recently passed buyback tax, helps provide clarity.

    Supply chain challenges compel companies to invest in resiliency

    Just about any company leader will tell you that the supply chain challenges of the last several years have been unprecedented. Occasional empty shelves are to be expected, but the shortage of nearly everything since COVID, including labor, has driven CEOs to rethink how they make their products.

    According to the WSJ, issues with finding workers are driving many companies to invest in software automation to lessen the impact of a tight labor market. PepsiCo has ramped up digital investments to better manage inventory within stores, for example. Alphabet, which sits on a mountain of cash, is buying servers and other equipment to set the stage for future growth.

    The fear of being caught short on components, as many businesses have recently, is also driving a “reshoring” movement to regain control of supply chains. A recent survey of executives in the U.S. and Europe, for example, found that “seven out of 10 U.S.-based manufacturing companies are planning to invest in new production capacity closer to their home bases as a result of the global upheavals of recent years.” The interruptions driven by conflict and wide demand swings in the midst of COVID created uncertainty that outweighed the benefits of a minimally expensive, global supply chain.

    In a word, companies are investing to become more resilient. A more nimble supply chain allows businesses to respond better to changes in the marketplace, even if it’s a bit more expensive than finding the cheapest places to source their products.

    Stock buybacks could lose their luster with a new proposed tax

    While investments for the future are important, shareholders still expect near-term returns. Buybacks have historically been a way to both manage dilution and increase shareholder value, but a new tax could cause them to fall further out of favor. The curiously-named Inflation Reduction Act promises to fund investments in energy security and climate change mitigation, paid for by various tax hikes including a 1% fee on stock buybacks.

    Other than tax advantages, buybacks have also been popular among company executives because of their flexibility. When a company announces dividend payments, shareholders will come to expect that income, and not take kindly to cuts in these payments. Buybacks, on the other hand, can be initiated at any point without implying that the company will keep doing it quarter after quarter. Another reason for their existence: they limit dilution from executive compensation. When companies grant shares to executives as part of their pay packages, the company then often chooses to repurchase an equal amount of shares to prevent other shareholders from being diluted.

    Lastly, of course, repurchasing shares can artificially increase their stock price, as there are fewer total claims to a company’s profits. A recent study showed that S&P 500 companies bought $882 billion of their own shares in 2021, about a quarter of which was for the purpose of managing dilution. That means that about 75% of buybacks from these companies were made solely to increase the share price.

    New corporate taxes of any kind can make investors skittish, but according to Bloomberg, the 1% buyback tax is unlikely to significantly impact public stock prices. However, it may tilt the scales in favor of dividends and Capex as a way for companies to increase their value.

    Yet the correlation between buybacks and Capex is still murky

    The Federal Reserve chart below compares investment versus capital returned to shareholders from the last 50 years or so. It’s clear that, in times of recession such as 2002 and 2008, investment and dividends/buybacks fall sharply as companies look to preserve cash.

    However, the idea that there’s a causal relationship between more investment resulting in lower buybacks, or vice versa, isn’t supported by the data. Coming out of The Great Recession, investment, dividends, and buybacks all rose in tandem off of a low base. From 2014 to 2018, though, investment began to decline while dividends and buybacks continued to rise. Now in 2022, Capex is growing faster than buybacks, further weakening the link between them.

    After thoroughly examining this issue a few years ago, the Fed found that its study “provides no evidence either that increasing share repurchases was a motivation for cutting back on investment, or that a lack of investment opportunities was a central reason for boosting repurchases.”

    That, however, does not tame the critics who argue that the proportion of net income being distributed to shareholders is unreasonably high, and that companies should be investing more aggressively in their workers, innovation and long-term growth.

    Capital allocation in the buyback debate

    Whatever the motivation, companies will continue to wrestle with the competing pressures of investing capital in the future of their businesses and returning capital to shareholders (and executives).

    For the champions of capital investment, and those who advocate larger Capex budgets, the onus is on them to clearly and accurately forecast the ROI potential of proposed capital projects, and the outcomes – both monetary and strategic – of projects that have been completed. Additionally, visibility into the cash status of projects in the Capex portfolio can be instrumental when decisions need to be made in the face of material changes in business conditions. This is where an enterprise capital allocation solution such as Finario can be a game-changer.

    We all know that buybacks will continue, regardless of a 1% tax, and that smart capital allocation remains one of the most essential responsibilities of the CFO’s office. The best performing companies make a point of continuously improving their ability to get the balance right.

  • How Is Inflation Affecting Capex Decisions?

    Whether it’s a carton of eggs or a tank of gas, prices are up in just about every corner of the economy. And while the implications for consumers or businesses at large are discussed night and day, there is less of a narrative around what it means for capital planners.

     For them, trying to decipher how long this bout of inflation will last, how severe it will be, how the central banks are likely to respond, and whether there will be a recession makes the task of planning and budgeting that much more difficult.

    On one hand, the rising cost of capital associated with interest rate increases can make it more difficult to fund projects. Add high current costs of labor, difficulty acquiring certain machinery, and shifting consumer preferences to this mix, and delaying project investments until the inflationary storm has passed can be tempting. If a recession comes about, those with extra cash reserves will be happy they saved for a rainy day.

    Conversely, in the face of these obstacles, many businesses find themselves flush with cash. Finding a way to deploy it productively instead of watching it inflate away can be a high priority. Investing in capital projects with high potential ROI now can be a smart move before prices rise even further.

    Beware the self-fulfilling prophecy

    The dynamic of trying to stay ahead of one’s competitors can create an unfavorable outcome. If businesses believe that inflation is here to stay, they’re likely to pull forward purchases to lock in lower prices, exacerbating the problem.

     Shortages throughout the economy make the outlook even murkier. Even if leaders want to pull Capex projects forward to lock in prices that they expect will increase, difficulty in sourcing necessary people and parts can jeopardize their plans. A recent Finario survey, for instance, found that many current and prospective customers have more projects in the pipeline than they can complete due to these shortfalls. With the floor shifting beneath their feet, capital planners must constantly be reevaluating projects in progress, and take all these factors into account when evaluating future projects.

    So, how are businesses making sense of the shifting landscape? For context, here first is a refresher course in the types and causes of inflation.

    Cost-push vs. demand-pull inflation

    Inflation arises for two main reasons: demand outpaces what the economy can supply, or shortages drive higher input costs, resulting in higher prices.

     The current flavor in the U.S. economy seems to be a mixture of both. Geo-political conflict has sent oil and wheat prices upward, and supply chain snags have produced shortages of goods from computer chips to baby formula. Higher input costs as a result of these shortages point to cost-push inflation.

     There has also been a historic amount of money injected into the economy by the Fed since 2020. All of that cash sloshing around without a place to go, in the context of ultra-low interest rates, is an indication of demand-pull inflation.

     While some companies have benefited from rising prices, high-growth tech companies have seen their stock prices crash as rising interest rates indicate a lower present valuation. These firms have had to endure a painful wave of layoffs, while energy companies are enjoying higher margins due to price increases.

     With both types of inflation, the Fed’s main mitigation tool is hiking interest rates. In June 2022 it raised its key short-term rates by 75 basis points, and more increases in 2022 are likely on the way.

    A key worry among investors is that the Fed is raising rates at the worst time, when the economy is showing signs of weakness. Further hikes could trigger a recession in the name of taming inflation.

    Amid these complicated dynamics, how are capital planners responding?

    A Capex spending spree?

    Historically, changes in short-term interest rates have proved to have minimal effects on capital investment.  Rather profit levels have historically had the highest correlation with Capex. Even though the cost of funding projects goes up with rising interest rates, interest rates also tend to rise when the economy is running hot and profits are high. Basically, even though project costs go up, companies usually have the requisite cash to fund them.

    Despite a horrific start to the year for the U.S. stock market, for example, the data shows that capital planners are unfazed. Significant Capex expansions were a theme from Q1 earnings, with nearly 200 S&P 500 companies reporting large increases year-over year. That’s an optimistic sign, as businesses wouldn’t make these investments unless they felt confident about realizing a healthy return. 

    Since inflation can be thought of as a ‘tax on holding cash,’ it would make sense for businesses to put that cash to work in productive investments, all else being equal. The question becomes whether business leaders believe that interest rate hikes will bring down inflation appropriately, without triggering a painful recession. If it’s able to thread the needle, then increasing investments now would be a wise move. If they overcorrect and trigger a severe downturn, businesses may wish they had extra cash to weather the storm.

    Physical vs. digital investments in the current environment

    Not all capital projects are created equal. Obviously, if there aren’t attractive opportunities, businesses shouldn’t make investments just for the sake of putting cash to work.

    Other than project quality, required inputs are an important element to consider. The tight labor market and continued supply chain challenges have made projects requiring a lot of labor and components hard to execute. On the other hand, software and tech investments that don’t have these constraints can be much easier to complete, increasing their relative attractiveness.

    When looking through a backlog of projects, capital planners should consider these limitations. Even if a software investment has a lower NPV than other industrial projects in the backlog, it might make sense to purchase the software (and requisite hardware) now, and wait for the labor and component constraints to ease before funding other projects.

    Don’t sit on your hands, but save enough for a rainy day

     Trying to time exactly when inflation will peak is a fool’s errand. Even central bankers admit that it’s an imperfect science at best, due to the countless variables involved.

    The path ahead is uncertain. Nobody knows for sure whether the economy is headed for a crash-landing recession, a softer landing, stagflation, or something entirely different. With so much uncertainty on the horizon, remaining flexible may be the ultimate strategy. Real time reporting, rolling forecasts, and better risk-adjusted ROI calculations can help businesses achieve the agility they need to navigate the choppy waters. For a look at how Finario can help you implement these best practices, click here.

  • Overcoming the Planning Fallacy with Reference Class Forecasting for Capital Projects

    Bob from engineering has been submitting project proposals for the past decade, and always underestimates total costs. Despite double-checking with vendors and colleagues ahead of time, his projects seem to constantly run longer and cost more than initially expected.

     Bob isn’t purposely reckless, he just falls prey to a phenomenon that is common in business: optimism bias.

     Also called the “planning fallacy,” this heuristic states that people tend to be overly-optimistic about how much things will cost, and how quickly and smoothly projects will run. Instead of anticipating surprise delays and expenses, plans are made with the assumption that everything will work out exactly according to plan. The result: projects that run longer and cost more are met with surprise.

    They shouldn’t be.

    It’s human nature to be overly optimistic. The real question is: what can you do about it? Start by understanding how to manage bias, then turn to reference class forecasting. By forecasting with data from comparable projects that have actually been completed, versus making personal assumptions, project leaders can get a more fact-based handle on what is likely to occur and how much it will cost.

    From the classroom to the office

    Behavioral economics as a way to understand consumer behavior has been a buzzy topic in the last several years. Popular psychology books focused on anchoring, recency bias, loss aversion and other heuristics have revealed to many how our blind spots can be exploited, for better or for worse. How bias impacts corporate finance, however, has been sequestered in academia.

    Slowly but surely, however, these concepts are entering the world of business.

    Any CFO will tell you that accurate forecasting is one of the most important functions their teams undertake. Misguided assumptions can throw even the best strategic plan off-track.

    Even though precise predictions are a core expectation of finance teams, their forecasts tend to assume lower expenses and quicker timelines than reality. While misaligned incentives can be a driver for these undershoots, the planning fallacy is often the culprit. In fact, even when forecasters are shown their forecasting track records, they often continue to undershoot, assuming that the next time will go smoother than the last.

    This isn’t a case of poor management or inadequate employees—even the largest of companies, like Sony, have fallen victim to these biases.

    Sony’s infamous Chromatron shows the planning fallacy at work

    Hersch Shefrin is a Canadian economist and pioneer in the world of behavioral finance. In his paper “Behavioral Corporate Finance,” he tells the story of Sony’s failed color TV venture in the 1960s. To summarize, one of the founders, Akio Morita, came across the best TV picture he’d ever seen at a trade show in New York. The screen was powered by a color tube called the Chromatron. Morita quickly obtained a license to produce a TV using the special tube, and began a multiyear effort to develop a prototype and scale production.

    Despite optimistic projections of costs falling dramatically with scale, and Morita’s steadfast confidence, the product’s cost held stubbornly at more than double the retail price. Even though they lost money on every sale, Sony pumped out more than ten thousand of these TVs. Only when the company was nearly underwater did the Chromatron project get scrapped.

    This example illustrates the harm of the planning and sunk-cost fallacies: not only was Morita overly confident before the project began, but he continued to double down despite evidence that his assumptions were wrong. If he had cut his losses when the project started to go south, the losses would have been a fraction of the actual total.

    The Chromatron story shows that even the best and brightest leaders can fall victim to natural human biases. As a way to control for these shortcomings, many companies are now adopting new forecasting models that are more dependent on data.

    Reference class forecasting as an antidote to bias

    Instead of building a project plan based on assumptions, reference class forecasting starts with a review of projects with similar characteristics that have already been completed – including type and scope of project, duration, technical complexity, strategic objective, business unit, etc. Beginning a project forecast by looking at analogous past projects increases the likelihood that assumptions are rooted in actual past outcomes.

    The ability to do reference class forecasting is exceedingly difficult for companies still storing their project data on spreadsheets and disparate systems. But with Finario, a purpose-built capital planning tool, it’s not only possible — it’s a built-in feature.

    Called Finario Predict, the system’s AI automatically queries the company’s project database and selects the historical projects that are most likely to be more predictive of a candidate project’s performance and provides a cost and ROI prediction for the proposed project based on that data. Needless to say, the more project data your company has to reference, the better.

    Bob, the engineer in our example to start this piece, is human. He is prone to biased outlooks because he wants his projects to be funded. He wants his proposals to be viewed as being well conceived and researched. He wants to be successful.

    The irony is, when projects turn out as they are “supposed to,” or even better, everyone wins. Which is why letting the data help do the deciding early on can be such a game-changer.

    Interested in learning more about behavioral corporate finance? Watch the replay of our webinar, Eliminating Bias in Capex Budgeting and Forecasting. Victor Riccardi joined us – a visiting professor of finance and editor of seven Social Science Research Network (SSRN) journals on the topics of behavioral finance, behavioral economics, decision making under risk, and uncertainty, and more. 

  • Capex vs Opex in a Connected Finance Framework


    At a high level, the differences between Opex and Capex are very clear: 

    Opex (operating expenses) covers an organization’s day-to-day expenses that keep the lights on, including payroll, rent, and inventory costs. Capex (capital expenses) covers major purchases that are meant to improve efficiency or capacity of current operations and/or generate value over the long run. These include plants, buildings, technology, machinery and other equipment.

    While both types of spending command a large share of an enterprise budget, and ultimately impact profit or loss, Opex has been the preferred target for digital transformation initiatives in the form of enterprise performance management (EPM) solutions. This is because Capex dollars on the balance sheet are often overshadowed by the day-to-day focus on the P&L. In the past, these investments could be revisited a few times per quarter; today’s pace of change in the business environment, however, demands more frequent reviews, and more detailed metrics.

    Moreover, in many companies, the ritual of the monthly actuals review focuses mainly on Opex variances. Comparisons against the annual plan and the latest forecast dominate the discussion, with Capex often an afterthought, reviewed once a quarter or so.

    This, frankly, defies logic. Here’s why.

    The “Capex gap” and the business case for integration

    Within most EPMs, Capex is represented as a single line item per business unit or per project that reports what has been budgeted and spent, with little project-level detail. Insights into the rationale or projected financial return on the projects, actual dollars spent at any given point in time, and other key information and metrics are rarely available.

    In an era of constant change and disruption, and where Capex budgets are substantial, this simply will not do.

    Coming out of COVID, and with the specter of supply chain challenges and other economic forces looming, it’s clearer than ever that assumptions are always in flux, meaning that companies today need systems that can keep up.

    In short, without a purpose-built solution for Capex, you’re operating at extreme disadvantage.

    Is it efficient to continuously chase down data sitting in a spreadsheet on an engineer’s computer? To require five to ten days to produce an essential report, when it could be available in minutes? To make critical investment decisions without knowing what has been actually spent on projects already in progress?

    Of course not. 

    The case for connected capital planning is stronger than ever. 

    Creating a “Capex hub”

    Instead of thinking of “Opex vs. Capex,” the more strategic view is “Opex and Capex.” Which means adding cloud-based capital planning software to your stack/ecosystem.

    As you can see, the ability to pass data between your ERP, EPM, and other solutions such as procure-to-pay and construction management, creates the single source of truth that can be so critical to accuracy and insights.

    This starts with integrated actuals from your ERP automatically matching to the correct project, eliminating a common headache for finance teams. Analysts that spend time painstakingly updating projects with actuals through manual coding processes will be freed up for more value-added tasks.

    Having that real-time view of approved spend versus pending requests and what has actually been spent can be invaluable.  For example, suppose your company had a large capital outlay in place for new office space which–coming out of Covid—was just scratched due to the rise of remote work. With real-time insights into the capital portfolio and the tools to rank and prioritize projects, finance leaders can redeploy those dollars quickly to other priority initiatives that will produce a better  return on investment.

    Perhaps most importantly, taking an integrated view of Opex and Capex in particular, and the entire “finance stack” in general, drives collaboration between corporate functions and the people who are engaged in them. As has been well documented, silos between departments and data throw sand in the gears of your company. Approval periods take longer than they should, teams don’t communicate well with one another, and priorities become misaligned across the organization. Breaking down the silos which inhibit information sharing can have a game-changing impact on efficiency and effectiveness.

    So, yes, while the “Opex vs. Capex” narrative is popular in finance circles, the real question that should be asked is “what’s the best way to manage Opex and Capex?” Because, while they’re different, they are both critical components of strategic growth and profitability.

  • What is Capital Planning: The FP&A, Engineering & Accountant’s Perspective

    By Charlie Rhomberg

    In the current environment of changing business models, monetary policy uncertainty, and an upside-down supply chain, making assumptions about the future can be futile.

    Yet, despite the clouded outlook, or perhaps because of it, prudent capital planning remains essential to success.

    To be in control amid these changing dynamics, companies need capital planning software that provides insights, financial intelligence, and ensures the accuracy of their forecasts for sound deployment of capital resources.

    For that, spreadsheets and siloed legacy solutions no longer make the cut.

    Enter Finario.

    By creating a single source of truth for Capex along with best-in-class decision support capabilities, Finario is an all-in-one program for the modern enterprise. Gone are the days of tying data from different systems, manually sharing forecasts with project managers, and Excel-based project modeling. It gives your business a state-of-the-art capital planning capability commensurate to the size and importance of your capital budget.

    Viewing capital planning through different lenses

    As a former FP&A analyst, I worked on various aspects of the capital plan, using multiple systems for different needs.

    If I had to approve a Capex project proposal, I went to Coupa, which doesn’t include project-level detail.

    If I was modeling the NPV of a proposed investment, I was in Excel.

    If I was looking up details on a current project for reporting purposes, I went to JD Edwards.

    Using all these systems made it difficult to get a complete picture of the capital plan. In FP&A, the focus should be on ensuring that capital is going to the portfolio of projects that will generate the highest return on the company’s capital.

    For engineers, the definition is a bit different. The Capex approval process is how their projects are added to the queue, and their incentives can differ from the broader goals of the organization. This can mean that impactful projects may be trimmed to fit the “mandated” or “sustaining” labels in order to increase chances of approval, as “growth” projects are likely to receive more scrutiny. In fact, a recent report in HBR wrote, “Senior managers end up rubber-stamping the small proposals that often makeup 80% of the capital budget.” 

    Dynamic approval workflows offered by Finario GO streamline the process, and ensure that the right people are in the approval flow, at the right time, with the essential data they need to make an informed decision. Additionally, the reference class forecasting feature compares new requests to similar ones that have already occurred, giving approvers unbiased, historical data from which to assess the new project.

    For accountants, capital planning looks different still. Ensuring the company has the bandwidth to finance a project along with other commitments is of the utmost importance to them. If promising projects are held up due to long budgetary processes, the company could miss out on valuable investment opportunities that could enhance their long-term strategy.

    Real-time insight into committed (and spent) cash across the portfolio gives all senior stakeholders the ability to have a real-time view into where things stand should unforeseen decisions need to be made. And Finario’s Converge feature allows you to compare various projects in the queue, and see how approving one or another will impact your budget. This type of insight is crucial in today’s fast-paced business environment.

    Capital planning is core to corporate growth strategy

    Getting FP&A and corporate strategy teams aligned on capital planning reduces the chances that a 5-year plan turns into merely a toothless corporate vision statement.

    In developing mid-to long-term plans, corporate strategy typically sets the vision first. After some period of market research, they’ll usually recommend new markets for the company to enter, as well as paths to increased share in currently-served markets. Depending on the length of the plan, they may also include high-level associated revenue projections.

    Once this plan is developed, FP&A is tasked with modeling various scenarios for funding that growth, while continuing to sustain existing operations. Aligning on assumptions with strategy teams is imperative at this stage. If the company doesn’t have the capital resources to execute on the goals corporate strategy has set, the plan is doomed to fail.

    Moreover, initial alignment isn’t enough. I’ve seen how quickly assumptions can change, so strategy and FP&A need to be tied at the hip to course-correct as necessary. 

    The bottom line is, a capital plan should serve a company’s corporate strategy—not vice versa. Modern companies need real-time visibility into their plan to ensure its continued service to strategic goals.

    Is a new CFO coming in? She likely wants to review details on previously-approved projects.

    Did input costs unexpectedly increase, pushing the updated project estimate over budget?

    Does one long-time engineer tend to underestimate costs associated with his project proposals, frustrating FP&A on the back end?

    Insights into questions like these are difficult and time-consuming with generic workflow solutions like Sharepoint or spreadsheets. Finario gives you full visibility into your capital planning, past and present.

    From the analyst’s desk to the C-Suite, Finario increases productivity across the board

    The dream of every CFO is to have engaged, productive finance teams. Legacy systems make that engagement significantly harder to attain. Instead of focusing on value-adding analysis, teams spend their time reconciling data across systems and chasing down necessary approvals. In my experience, this leads to apathy around the entire capital planning process.

    With a capital planning solution such as Finario, it’s not just finance that will see their productivity increase. IT will no longer have to deal with the inherent headaches of manual workarounds. Risk management will have a real-time picture of risk across the portfolio. Accounting can see project budgets by fiscal periods automatically.

    So that should answer the question, “what is capital planning.” Which then leads to the next one: does your organization have the tools it needs to do it as well as it should?

  • 10 Aha Moments You’ll Experience with a True Capex Approval Workflow System

    Whether your approval workflow process today is manual, or utilizes a generic workflow solution such as Sharepoint, you’re not likely to stop what you’re doing at any point in the day and think to yourself: wow, that was really great.

    Quite the opposite: if you’re like most organizations with meaningful Capex budgets, your approval workflow (or CER process) is probably the source of frustration, concern, even anger. Capex solutions that take a static snapshot of a project request then route those unchanging requests through a rigid approval without providing insight to inform decisions as they relate to other project requests is limiting.

    There is a better way, of course. Capex requests are living, changing and evolving strategic initiatives intended to drive value and competitive advantage. This requires a system that will account for the ever changing elements within specific projects and changes to approval routes and criteria. An inflexible workflow pushing around static project requests with stale data won’t cut it in today’s competitive environment.

    That’s why a dynamic approval workflow such as that which you’ll find in Finario, is a game-changer. Here are ten “aha moments” you can expect to experience by implementing only purpose-built enterprise software for Capex:

      1. 1. Your SVP of FP&A has left the company and a new person has stepped in. Do you have to rebuild your approval matrix? Aha! Not with Finario. When people in your workflow change in and out of jobs and approval tasks, so does your approval stream — dynamically, even if in-flight. It’s a standard feature of Finario’s user configured approval matrix.
      1. 2. A project manager updates her forecast; it exceeds the approved budget by 12%. Does it fly under the radar until it shows up in a report to leadership? Aha! Not with Finario’s change tolerance feature. When a project exceeds its forecast by a designated percentage, the project gets rerouted for new approval.
      1. 3. You have two large-scale projects that require ROI modeling. Will they be evaluated using different criteria and metrics? Aha! Not with Finario. When approvers are considering a project, P&L and ROI models will be accurate, consistent and compliant. This is because the financial models are built within the system’s parameters to guarantee consistency. No more one-off Excel models with errors lurking beneath the surface.

    Explore Finario Go Editions

      1. 4. An engineer who is building a project proposal has a habit of assuming best-case scenarios as it relates to projected costs and timelines. Will this inherent bias create a cost overrun problem later on? Aha! Not with Finario. Budgets used to gain approval will be free of bias (well, at least, mostly). Finario’s reference class forecasting feature compares new requests to similar projects that have been completed, so that owners and approvers can gauge what is truly likely vs. not so much.
      1. 5. There’s a new CFO at the company and she wants to review the details behind certain projects that were approved several years back. Will she have immediate access to such data? Aha! Yes, with Finario, if someone in leadership wants to see why a project was approved a year, two years or more after the fact, he or she can do so easily. Finario archives all prior projects and their supporting data even if they were not approved. Not only does this provide a solid audit trail, it serves as a valuable repository of knowledge for future projects.
      1. 6. Someone in your approval chain is dragging their feet. Will it mean your project proposal comes to a grinding halt? Aha! Not with Finario. He or she will get email(s) reminding them that their approval is required. It’s a standard feature of Finario’s approval queue. Users can also see all projects they are listed on as an approver in the approval queue on their personal home page. Finario is also mobile enabled so notifications will appear on an approver’s phone if they are out of the office, on which they can approve or deny the request directly.
      1. 7. You have a new Chief Sustainability Officer (CSO) that needs to be included in your approval matrix. Does that mean you have to hire a programmer to figure out how to change the rules that govern your approval sequence? Aha! Not with Finario. Updating your approval matrix can be done by virtually anyone with permissions in a matter of minutes. Finario is designed to be managed by business users, no need to contact IT and wait for support.
      1. 8. You’ve got a dozen Capex projects vying for limited dollars in the queue. Can you compare and contrast how approving one or more of them vs. others will impact your budget? Aha! Yes, with Finario’s Converge feature, you can easily “stack rank” projects and immediately see how approving one vs. another will impact your budget, and choose those which will have the most material impact on your business.
      1. 9. In going through your budget process, there were many proposed projects that weren’t approved for funding. Does this mean the data that was gathered will be lost? Aha! Not with Finario. Unapproved project data can be pushed out to future years and is available for review and input when researching new investment proposals. Finario keeps all project data: approved, unapproved, closed, and rejected – all instantly available and searchable.
      1. 10. At last, you’ve invested in an automated Capex approval workflow system. But will it be “back-level” in a matter of no time? Aha! Not with Finario. As a cloud-based platform, as enterprise needs change and technology advances, your application will advance, too, ensuring that you have the best solution currently available. Finario is constantly rolling out new features and enhancements.

    So, do you have a Capex budget of $100M … $500M … $1B? If you’re still managing approvals manually, with Sharepoint, Lotus Notes, or other generic systems, it’s time you looked into Finario. Many aha moments await you.

  • ESG + Capex: Where Do We Go From Here?

    esg and capex

    It should come as no surprise that ESG (environmental, social and governance) issues are top of mind for Board of Directors, CEOs, CFOs, Financial Planning & Analysis Teams and other line of business and finance and accounting leaders:

    • Back in May, an activist hedge fund shocked Wall Street in securing three seats on the Exxonmobil board, with its mandate to deliver a “lower-carbon future.”
    • Investors are paying attention. According to Deloitte, the percentage of investors who factored ESG in determining at least a quarter of their portfolios grew from 48% in 2017 to 75% in 2019. Moreover, institutional investors are increasingly considering ESG risks and opportunities in constructing their portfolios. A 2020 global survey by Natixis found that 72% of institutional investors are implementing ESG strategies.
    • According to the recruitment firm The Weinreb Group, the demand for a Chief Sustainability Officer (CSOs) in Fortune 500 companies has grown 228% over the last ten years. More CSOs were hired in 2020 than the past three years combined.

    This represents important challenges and opportunities:

    • Implementing ESG strategies and requirements necessitates a leadership mandate and proper infrastructure to execute. That might start with the hiring of a role such as CSO, but also include the technology backbone to properly evaluate, select and budget required capital investments.
    • With investors, regulators, competitors, suppliers and the public watching every move, systematic reporting is essential for management to create transparency and accountability to measure progress toward goals and keep stakeholders informed.
    • Leadership needs the data and insights needed to understand how the cost of capital can decrease with increased ESG performance.

    In many ways, capital planning and capital investment (Capex) and management are at the center of these initiatives, which shines a bright light on the value of a purpose-built enterprise Capex software solution:

    ESG and Reporting: Matching Talk with Evidence of Action

    It’s easy to write about your commitment to ESG in your annual report. Actually reporting your ESG-related capital expenditures in public filings is one of the most concrete ways to provide “evidence” of the actions your organization is taking.

    Currently, there are no set global standards for ESG reporting, but regulators such as the SEC have introduced a preliminary set of guidelines on investment product reporting and disclosure recommendations. Can guidelines for individual companies be far behind? 

    What can you be doing now to be both proactive and strategic? Well, since most environmental and sustainability projects often involve significant capital investment, you need a purpose built Capex system to plan and track ESG activity. The ability to appropriately identify/classify projects as either ESG-specific or ESG-related is only the first step. You’ll want to be able to publicly share details regarding projects in progress, and those that have been completed and put into service (and the positive outcomes generated). 

    With an integrated capex system like Finario, you can plan, prioritize and track ESG related project proposals from the idea stage, approval stage, and build stage, and conduct a post completion review of its outcome all in one tool. Along with prebuilt dashboards and reports, Finario offers ad hoc reporting to view and manage spend by entity, location, activity, or any other view a user selects. No more spreadsheets to update, no more version errors of outdated data; all information is housed and reported in one integrated application with a fully discoverable audit trail.

    Strategic Evaluation: Embracing ESG Requirements Opportunistically

    For many companies, investing in environmentally responsible technologies and capabilities is not just a necessity, but can provide competitive advantage and endear their brands to an increasingly watchful investor and consumer community. 

    To better understand how a particular Capex investment can add strategic value, having the ability to model ROI and risk at the project level can be indispensable. For example, if two projects are competing for budget, one that fits within your ESG framework, can drive efficiency, and/or appeal to ESG-focussed communities, can and should get preference from those that don’t.  This objective decision making framework provided by Finario removes the politics, jockeying for project approval and squeaky wheel syndrome that hamstrings many organizations from making the right decision about where to deploy capital. 

    Moreover,  one of the biggest issues facing enterprises that are anticipating regulations, is the issue of timing: do you make required updates/changes/additions in advance of an anticipated regulation, or wait?  It’s incumbent on leaders to be able to articulate the opportunity cost of a “do-nothing” approach to looming ESG requirements vs. taking a more proactive approach, as they can be considerable. Additionally, if your ROI analysis resulting from using a tool like Finario reveals a strategic advantage to proactivity, then that can be acted upon to drive the business forward while being ESG responsible. 

    Approval Workflow: Ensuring that ESG Strategies & Requirements are Being Appropriately Considered

    The manual, slow, and often disconnected nature of capital project planning, prioritizing and approvals is a common pain point in the Capex process. Now, with ESG initiatives and requirements to consider, another layer of approvals is required — or even mandated by the Board, CEO, CFO or Chief Sustainability Officer. In the latter case, projects with potential environmental impact or ESG commitments have to be flagged and routed through the CSO for review and approval. 

    A true approval workflow system is dynamic and allows different routings for different types of projects depending on activity involved and not just dollar thresholds. It also houses a standard submission template with sections for project rationale, costs, attached support documents, and P&L and ROI information. In the case of ESG projects, you can require specific environmental impact estimates and costs/savings. All this data, in a consistent format, means leadership can compare and evaluate projects on a level playing field and ensure money is allocated to the right projects at the right time.   

    ESG is a “Hot” Issue … and Getting Hotter

    With the constant drumbeat of new reports envisaging calamity, such as the one released by the UN’s Intergovernmental Panel on Climate Change (IPCC) that characterized the situation as a “code red,” the pressures on business to do their part will only increase.

    In short, ESG is here to stay.

    For Boards, CEOs, CFOs and FP&A, it raises the bar on their responsibilities related to investment analysis, competitive advantage, reporting and compliance. Which only magnifies the need for digitally transforming the finance function. Having the right tools to meet that task is increasingly more important. 

    Watch the webinar and demo replay:

    ESG + The Capex Connection

    Click here to save your spot.

  • Change, Challenges, and the Food Industry

    It has been a trying year and a half. And while some industries have been hit harder than others, the food & beverage and food service industries are continuing to see challenges that will likely continue for months, if not years. 

    Among these challenges: According to Business Insider, four million Americans quit their jobs in April — a 20-year record — many of whom worked in the retail sector, which is in the middle of a massive labor shortage.

    Moreover, food prices globally rose in May for the 12th month in a row, reaching a 40% year-over-year increase, according to the Food Processing Association, and is the largest month-to-month increase in more than a decade.

    Amid these challenges and uncertainty, what can you do today to be best positioned for any eventuality? A good place to start is to consider your capital spending.

    More specifically, consider the benefits of automation. Would it make financial sense to automate certain processes and roles to add efficiency and augment your staff (think automated order taking and filling). Automation projects like this may not have made sense five years ago with lower labor costs, but given the current market and improvements in technology, they may be better investments today.

    If you know inputs like labor or food stuffs will increase in price then you need to protect your margins by saving cost and being more efficient in other areas. Consider aggressively pursuing cost-reduction projects across all areas of the business. For example, LED light upgrades will save on utilities — every successful cost reduction project is an insurance plan to your operating margin. How about expanding warehouse storage and purchasing in large quantities to reduce unit costs? Every option should be on the table for review.

    To implement this strategy, ask your business owners to submit candidate Capex projects with comparable ROI models, and rank these projects for approval. If you’re still capital planning with spreadsheets or SharePoint, consider an investment in Finario — the first purpose-built enterprise capital planning software solution.

    Combining capital planning, budgeting, Capex approvals, project forecasting and post-completion review within a single platform, Finario does more than just automate processes, apply more rigorous and consistent ROI criteria, and enable rule-based approval streams. It enables you to apply “What If?” analyses to see how specific approval decisions will impact your plan, forecasts, and other criteria by project portfolio, location, business unit and more.

    With an integrated Capex system, creating project requests for budgeting and forecasting is not a once a year process. With Finario, project ideas can be entered at any time by any user. Project ideas can be moved to any time period, not just the current or next fiscal year; this is ideal because ideas should never be limited by a fiscal calendar. With management able to see all projects, active and pending, at any time and create a rolling forecast of Capex spend, you’ll be in the best position possible to make better decisions, quicker, that can help mitigate uncertainty and react opportunistically.

    If you would like to schedule a demonstration of Finario, click here

  • Capital Planning in a Time of Rising Rates and Inflation

    Like it or not, the question isn’t if we will see increased inflation and interest rates but how high they will go and how long will it last.

    Their causes and contributions to the current environment are many: Covid-19 and related disruptions in the productivity of businesses, labor shortages, pent up demand that is straining already stretched supply chains, a shortage in microchips, lumber and materials..

    Per Bloomberg:

    The case for higher-for-longer inflation into 2022 often rests on the trillions of dollars being pumped into infrastructure projects globally in a low-interest rate atmosphere, most notably in the U.S. That has supercharged a rally across raw materials, as major economies recover from the pandemic amid growing signs of shortage across several markets.

    The Bloomberg Commodity Spot Index, which tracks 23 raw materials, has risen to its highest level in almost a decade. That has pushed a gauge of global manufacturing output prices to its highest point since 2009, and U.S. producer prices to levels not seen since 2008, according to data from JPMorgan Chase & Co. and IHS Markit. JPMorgan analysts also estimate non-food and energy import prices in the biggest economies rose almost 4% in the first quarter, the most in three years.

    In light of this uncertainty, wouldn’t it be helpful if you could review all your Capex projects, both approved and in the idea stage, for the next twelve to eight months? With your priorities set and modeling in hand, you could easily share your data with your procurement and  supply chain teams, and then be better empowered to work with vendors to mitigate price increases by agreeing to terms now. Lock in prices and delivery.

    For most organizations, getting that portfolio view with consistent evaluation metrics is difficult, or even impossible. With Finario, the first enterprise software solution purpose-built for capital planning, you’ll have a single source of the truth that connects budgeting, approvals, and reporting/forecasting. You could easily, for example, pull together all Replace/Renewal projects that are approved but not started, in flight (in the approval process), and in the idea/budget stage. This list would then let you know what vendors to reach out to and negotiate contracts with and mitigate price increase impacts.

    You can’t stop investing in your business just because the climate is uncertain. This uncertainty means it’s more important than ever to know where you are spending now and where you need to spend in the future. If you are still managing your capital investments with email and spreadsheets, then your ability to gather information quickly and make informed decisions is limited at best. Implementing Finario would pay for itself in cost avoidance and make your capital planning faster, simpler, and more user friendly all at the same time.


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If Capex is important to your organization's performance, this may be the best 30 minutes you spend in a long time.

Topics Include:

    • Improving budgeting/forecasting accuracy
    • Injecting actuals into forecasts
    • Applying consistent ROI metrics to projects
    • Streamlining your approval workflow
    • Empowering agile decision making
    • Improving cash flow forecasting
    • Enabling post-completion reviews (audits)

Next Scheduled Event

Wednesday, September 26th

11am ET (8am PT)