Where to Begin with Capital Program Transformation
For any new initiative you wish to undertake, it’s imperative to develop a business case and rationale that will help to define its vision and its value. Proposing to transform the way your business manages its capital program is no exception, and there are a number of factors to consider if you’re going to go about it successfully.
First, you should estimate the benefits that such an undertaking will deliver to your organization and be able to communicate them to the appropriate stakeholders internally. Second, you must be able to calculate the value (financial and otherwise) that such capital program transformation will add to your bottom line. Last, it’s important to identify the key decision makers within your company that can both drive and sign off on this vision.
A Better Capital Program Should…
Increase Efficiency & Productivity
Most companies feel like they’re working against the clock when managing their capital program. Why? Because the common patchwork of spreadsheets and custom-point solutions used to manage Capex creates repetitive data entry and reconciliation, makes reporting burdensome, limits contextual project understanding, and ultimately slows down and degrades decision making. With the automation of routine tasks and the centralization of capital project information within a single system, your organization will be able to enhance efficiency and productivity across the entire capital program.
Eliminate Rogue Spending
This patchwork of spreadsheets and custom solutions also makes organizations vulnerable to ill-advised and even rogue spending across business units. Without a transparent audit trail that reflects what’s being requested and approved across business units, you run the risk of people in the field spending money without the proper authorization. With a single system of record for both approvals and capital budgeting, you can establish accountability and rein in unnecessary spending.
Improve Project Analysis
With so many disparate and moving parts in the Capex process, tracking down accurate data to conduct in-depth project analyses and comparisons can be an excruciating endeavor. In contrast, when project owners can easily enter detailed revenue and expense projections without assistance, they free up Finance to conduct more in-depth capital program planning and performance analysis. Thorough and consistent project development and estimation also provides the foundation for more effective capital allocation as well as strong project execution.
Optimize the Way You Allocate Capital
Faster Capex decisions don’t necessarily translate into revenue growth and profitability. Intelligent, strategically-focused capital allocation does, however. To attain this requires the ability to construct strong capital portfolios made up of the projects that show the most relative promise. It’s important to ensure that projects selected for approval have been properly vetted, risk-adjusted, and scrubbed of internal bias. Doing so helps to generate a clear picture of how the project aligns with strategic targets for the organization – whether they’re focused on growth, improvement or maintenance.
Generate Strategic Sourcing Opportunities
High-performing companies know how to apply effective strategic sourcing and supply chain management techniques for materials needed for capital goods. By bringing Procurement into the fold at an earlier stage of the Capex process and providing them with the necessary cost and asset-level detail across projects, they are in a position to more effectively identify strategic sourcing opportunities, such as negotiating better agreements with vendors and more.
Strengthen Cost Control
A majority of large projects come in late and over budget. The cost to this is substantial, both in terms of the overspend (and the fact that it can crowd out other attractive projects) as well as in the operational costs and often missed revenue from entering service late. This waste is preventable, but it requires sound upfront planning that eliminates miscategorized costs, weak rationale, and inaccurate ROI analysis. It also important to be able to to communicate unplanned variances quickly so that proactive intervention can prevent the project from “running completely off the rails” once a project is underway.
Foster a Culture of Continuous Improvement
As with any endeavor, the first step to improved performance is knowing how you did. With Capex, pulling together the data to properly evaluate past performance (including on return, not just cost) as well as institutionalizing this knowledge so that it can be applied to future decisions is typically time-consuming at best and impossible at worst.