The concept of digital transformation of finance has become such a hot-button issue. With so many varying takes on the topic, it’s no surprise that many organizations struggle with building their roadmap. This can be particularly true when it comes to Capex automation.
Conventional wisdom suggests that Capex automation is a “no-brainer” given the role that it plays in a successful enterprise, and the amount of money that is at stake. That is, until pesky details start to get in the way and the inclination to do nothing starts playing devil’s advocate.
Against this backdrop, here are three of the bigger hurdles you might face specific to transforming your Capex processes, and how to overcome them.
Who is the champion?
In most large enterprises, significant change doesn’t occur without the support of executive leadership. In its absence, the mountain to climb is much steeper and more perilous. Getting that support isn’t always easy.
Which is why you need a “change agent” to champion the cause … someone who understands that great ideas need to be sold and, as Thomas Edison put it, recognizes that “vision without execution is hallucination.”
Your change agent should be someone with technical and soft skills. A person who is particularly good at articulating the “Why?” … and can then translate the emotional argument into a strategy that builds empathy, rapport, and ultimately amplifies the business case.
To do this, change agents use their informal networks to communicate, build consensus and harness a team that can do the work. Patient, well prepared, and armed with facts, they are able to find momentum. And, ultimately, they are able to overcome those who rationalize that it’s easier to stay with the status quo (because it’s “good enough”) rather than do the right thing.
The Bottom-Up Paradox
Another common hurdle revolves around how Capex automation increases accuracy, transparency, and compliance. Put simply, it compels project owners to follow a prescriptive course — and that can be construed as “disruptive.” (Translation: accountability.)
Planning, budgeting and forecasting a large capital project is inherently a “bottom-up” exercise — which follows a zero-based budgeting (ZBB) mindset. In a purpose-built Capex system like Finario, the process is logical, intuitive, and automated.
In contrast, “top-down” budgeting, with its reliance on historical spend adjusted by an arbitrary percentage, requires significant effort to collect budgeting and forecasting data. In a way, this creates a “tolerance” for less detail and accuracy. Which, in turn, places less onus on project owners to be accountable for their results.
So how do you overcome resistance to change?
You wouldn’t spend tens of millions of dollars on a process to increase gross margin without actually tracking your gross margin change. You wouldn’t institute policies to control SG&A spend without tracking SG&A as a percent of revenue. So why would you spend tens of millions on capital, which will impact the profitability of your operations for years, without fully vetting projects and carefully comparing them to one another?
Making that argument as governance vs. guidance is one place to start. The next is to offer a counter argument: that implementing an enterprise capital planning system like Finario will significantly simplify the process for all users, provide greater flexibility, and at the end of the day, make those who use it look better for producing projects that more consistently result in an attractive ROI.
“Our ERP Can Do That”
Yet another hurdle is the argument that existing project accounting within the ERP system in place (or perhaps with a little tweaking) is sufficient to manage capital project management. With all due respect to those who espouse this, it’s more like going into battle with a butter knife than a bazooka.
ERP systems are simply not designed to accommodate the demands and nuances of the capital process from start to finish. While they might capture actuals and forecasts at a project level, they offer little or nothing for the budgeting and approval process. Generic project accounting also lacks the ability to identify individual assets on complex projects and fails to capture depreciation details needed to transfer the project to fixed assets not to mention having nothing to say about ROI.
Exposing these weaknesses is key. For example: Annual budgeting will likely be offline since you don’t want unapproved projects created in your ERP. So now you have to roll up a bunch of spreadsheets that likely are in different formats and lack the supporting documentation you need to compare all the submissions against one another. This opens you up to possible version control issues, update bottlenecks, and does not allow real time viewing by leadership.
For the approval process you will either have to dedicate a resource to track emails nonstop or automate the process in something like Sharepoint. Neither approach is very good. Emails invite human error and confusion while a SharePoint or similar solution is difficult to update over time, incapable of handling complex approval streams, and will require support from IT and the constant wrangling of “workarounds”.
Translating these shortcomings into costs, cost-overruns, and missed opportunities will make the case. After all, money talks. Which leads us to our final point …
The Elephant in the Room
Even after the typical hurdles we’ve discussed have been overcome, someone is still likely to bring up the issue of how much a Capex software solution costs. Which is unfortunate; a better discussion is “price/value.”
Here, again, it’s important to shift the discussion to the potential ROI. According to McKinsey & Company, for instance, achieving world-class Capex management can drive a 15-25% reduction in overall capital spend coupled with an improvement of 2-4% in return on invested capital (ROIC). “Some firms have even achieved a staggering 50% reduction in year-on-year Capex portfolio spending,” the company says.
It’s hard to argue with that! Instead of figuring out how to vault hurdles, you should be jumping for joy.