Prioritizing Capex projects is
more challenging than ever
before. Here’s why.
You’ve got three projects competing for finite funds … and your approval.
One aligns particularly well with your organization’s ESG strategy. Another has outsized ROI potential … but could take several years to materialize. The third is favored by a team whose product line has been a cash cow in the past, but can’t be milked much further.
Which do you choose? It’s the type of conundrum we’re hearing from operations and engineering teams all too often.
In short, prioritizing Capex projects can be more challenging than ever before. You know the drill: do you prioritize “keeping the lights on,” driving long-term growth or satisfying Wall Street’s insatiable appetite for short-term success? And the larger your capital portfolio, the more scenarios like these you have to contend with.
Modern project prioritization requires a nuanced, dynamic approach that considers strategic alignment, interdependencies, disruption, macroeconomic risks, and more. Here are but a few of the factors Capex stakeholders are considering, and how you can cut through the noise to make prioritization a little easier.
1. Economic headwinds
Inflation and higher interest rates
The rate of inflation may have slowed considerably since its peak in mid-2022, but materials costs have not exactly come back down to Earth, and higher interest rates continue to put pressure on every project to deliver.
Because of this, when evaluating the merits of larger projects, the stakes are even higher – particularly when requiring CEO or board-level approval. That’s because they aren’t just asking if a project is worth pursuing — they want to know why now and whether it will deliver a return that justifies potentially high financing costs. To get the green light, your case has to be airtight, demonstrating both a compelling ROI and how the project fits into the bigger strategic picture
Labor shortages
You’ve made it through the gauntlet of getting a project approved, but do you have the people to actually get it done? If hiring is part of your role, you know how tough it can be to find qualified talent. Without the right team in place, an approved project can grind to a halt before work even begins.
All this adds an additional layer of calculation when deciding whether to approve projects.
To get a better sense of the labor challenges now facing companies like yours, consider this: In some industries, a significantly large number of new employees are required just to keep up with modest growth projections. The manufacturing industry, for example, has a projected labor gap of nearly 2 million by 2033.
Short-term return pressure
If you’re a public company, missing your quarterly targets isn’t an option. Stakeholders — from Wall Street analysts to private equity backers — are increasingly vocal about their expectations for meeting and exceeding targets. And while dividends and stock buybacks are easy to rationalize to shareholders, capital projects with long payback periods are less so.
That can put you in a tough spot. You feel the heat to prioritize quick wins, but leaning too heavily into short-term gains means sacrificing initiatives with lasting, transformative potential. Balancing these conflicting priorities is no small feat.
Compounding the challenge can be the intensifying scrutiny for Capex funding. With the rise of bottom-up budgeting, rolling forecasts, and cost-focused approaches, every project — especially those with higher investment thresholds — can become a candidate for reevaluation, even mid-cycle.
Moreover, as you and your team pour over layers of data and assumptions to validate each project’s value, it’s easy for “analysis paralysis” to set in.
2. Fast-moving technology cycles
The pacing problem
Why do regulations appear to be changing so much faster than they used to? Much of it stems from an attempt to keep up with accelerating technology innovation cycles, a phenomenon known as the “pacing problem.” It’s never been easy to forecast the impact of new technologies, but in prior decades, leaders had some breathing room to adjust. Today, the window is shrinking. If your organization isn’t adapting just as quickly, you risk falling behind.
Of course, innovation doesn’t come cheap — or easy. Cutting-edge projects with transformative potential tend to come with steep upfront costs and implementation challenges. As an engineering leader, you might know the strategic value of a new technology inside and out, but convincing others — especially when budgets are tight— can be an entirely different challenge.
3. A thicket of regulatory requirements
To say that the regulatory landscape is a moving target is a gross understatement! Data protection rules, environmental standards, financial transparency laws…it’s a lot to juggle. And few people know this better than those in operations and engineering.
ESG considerations
The on-again/off-again push for environmental, social, and governance (ESG) accountability adds a new layer to project evaluation. For leaders in your position, it might no longer be just a checkbox for compliance — it can be a mandate from shareholders and leadership alike. As a result, sustainability metrics need to be part of your Capex planning from the start.
This is why so many Capex stakeholders we talk to tell us the same thing: when two projects have a similar risk/return profile, the one with a stronger ESG “credentials” usually gets the nod. For this reason, many companies are including essential metrics (carbon emissions, for example) and strategic criteria in their approval workflows using a system like Finario.
Modern solutions to support Capex prioritization
Navigating the competing demands and priorities of a modern-day Capex portfolio, particularly at capital-intensive companies, is a challenge for all parties involved – be it finance, operations / engineering, IT, or procurement. Having the right data, collaborative tools, and orchestrating systems is critical. This shouldn’t be left to spreadsheets, generic workflow systems like SharePoint, or software tools that “roll up” the complexity of capital projects into single line items.
It’s why Finario’s cloud-based, purpose-built capital planning solution is not a “nice to have,” but rather essential.
Eliminating process drudgery
When finance teams aren’t mired in manual data entry, spreadsheet consolidation, and tracking down project updates, they are freed to more thoroughly evaluate the merits of your proposals. Plus, automated financial reporting tools allow finance to quickly surface the insights that matter most to CEOs and CFOs — ROI/ROIC, risk versus return, and strategic impact — without getting bogged down in process minutiae.
Preparing for any outcome
Whether it be something as traumatic as a pandemic or recession, or a cyclical event such as abrupt change in consumer preferences or demand, you need to be able to gauge the status of every project in your portfolio quickly, assess your options and pivot as needed. A project or projects that you may have de-prioritized one day can unexpectedly become much more attractive as market opportunities and competitive threats evolve ever faster.
Having that data at the touch of a button in a crunch is a game-changer. Moreover, even under “normal” conditions, when project timelines shift or delays loom, data-driven insights allow your team to quickly pivot to shovel-ready projects, keeping momentum strong and budgets fully utilized.
Creating a culture of continuous improvement
Every project offers an opportunity to learn. Robust post-completion reviews let you unpack the outcomes: what worked, what didn’t, and why. You can then use these insights to refine your approach and base future decisions on real-world outcomes rather than assumptions.
As the challenge of prioritizing capital projects only becomes more complex by the day, staying two steps ahead provides competitive advantage and gives leaders in operations and engineering the confidence they need to defend their choices with vigor.
Finario is the platform purpose-built for modern Capex prioritization challenges, combining real-time data integration, standardized ROI modeling and scenario analysis to give your team the insights and agility needed to thrive. Confidently prioritize projects, defend your choices, and adapt as conditions change. Request a free demo today and see it in action with your data.
See what the world's most trusted Capex software can do for your company
The first step to transforming your Capex planning and management is to get a sense of the possibilities. A short demo will do just that.
