You’re halfway through Q1, your annual capital budgeting process is done and loaded in the system; fiscal year-end reporting is wrapped up. Now you can breathe a sigh of relief, right?
Hardly! Annual budgets are typically outdated as soon they are approved. So if you need to revise forecast or make changes to operations now’s the time. Want to affect Q1 results? The clock is ticking.
If you produce any type of physical product then Capex is a material part of your financials; if you’re managing it manually via spreadsheets, the prospect of a deep dive back into projects for a Q1 forecast probably sounds like as much fun as a trip to the dentist. What’s the alternative? Rubber stamp the figures for Q1 from the annual plan? You know this is not the right answer, as it provides zero insight to running the business, and ignores possible changes to the financials.
So here’s what you should do:
Step 1.) Deploy a project-centric capital planning solution like Finario. With such a tool you build your capital budget from the bottom up, project owners entering the actual data and leadership having visibility to results in real time. Result: a central repository of projects that make up your budget and project owners have access to the details as do finance and management teams.
Step 2.) Now that we are into the new fiscal year, ask the project owners input and review their projects. After all, who is in a better position to review these projects than the owners themselves! Plus, when you break it down by owner you are only talking about a few dozen projects each person might have to review for the entire year.
Yes, if you have hundreds of projects annually this may sound like a big task, but hear me out.
You can make this easier and be more realistic at the same time. Ask project owners to only look at projects scheduled to start in Q1 and Q2, we all know projects six months out are a “best guess” anyway. All the owners need to do is verify start and end dates — and make updates as needed and the results roll through. That is the beauty of a project-centric Capex system.
Step 3.) Ask if any issues have come up that require an immediate fix. A critical machine might need replacement sooner than budgeted, a roof might have just started leaking, or a new safety update may be needed. The people that know this detail best are users in the field. Just be sure you are pulling forward any projects that have become critical or enter any new safety/regulatory projects that are now mandatory but were not in the budget.
Step 4.) After input from the field comes Finance’s review. This is where an experienced financial eye looks over the changes, assesses impacts, makes sure nothing was keyed in error (don’t want to create any false alarms with leadership), and performs a general “smell test” of the Q1 forecast. It’s the time to check that current projects are incurring actual costs and are inline with estimates via standard reporting from your integrated Capex solution. If a project looks like it’s going over budget make sure the Q1 forecast reflects that change. It’s also time to question owners about projects that are supposed to be in progress but have no costs coming through; if the project is delayed then work with the owner to establish a realistic start date.
That’s all there is to it. Leadership now has an updated, realistic Q1 forecast of Capex spend. You will want to compare this to the original budget, which Finario also makes a snap, and discuss any material changes. But that is the entire purpose of this exercise: to find and review issues that may impact quarterly and annual results.
Moreover, with a project-centric planning and management tool, you are able to add insight to the capital budgeting and forecast process. Suddenly, getting updates on hundreds of projects is realistic and manageable. Your process has gone from “another spreadsheet nightmare” to a “review and assessment of impacts on financial performance.”
Which one sounds like a better use of time and effort?
