Capital appropriation request (CAR) is an essential part of a connected capital planning process. Once the annual capital plan is complete (mostly viewed as capital allocation) there is a formal process for approval to spend. Some people also refer to this as the business case development and management process. The CAR process requires the capture of new investment ideas, the development of a formal business case to identify the ROI, NPV and other decision metrics of the investments and lastly, the approval of the investment.
In the process, identified in Part I, we outlined the three phases of the capital appropriation process.
All new CapEx investments should be initiated in the idea phase. Keep the data to a minimum and be careful not to make this an overburden process. Include a high-level description, high-level cost, identify high-level risk of doing nothing and include a statement of why the initiative is needed. Depending on your business unit you may want to include some additional information but keeping this part of the process simple will make it stickier and increase adoption. Allow for different stages of an idea and give people the freedom to openly jot down ideas. For example, ideas can have a T-shirt sizing stage, idea review and ready for feasibility (business case development) phases. In the T-shirt sizing stage, it is only viewable by the user and not by the wider group. This is as a sandbox where people can freely capture their ideas. Next is the idea review stage that allows your peers and managers to view and approve the idea for the feasibility stage (depending on configuration). See example below.
Figure 2: Example of ideation phase
Once the idea enters the feasibility stage it is ready for further evaluation and analysis. Companies will often have a funding threshold that requires a full business case to be created and presented to a committee for approval. Depending on the company size the threshold can be as little as fifty thousand to over one million dollars. Once an investment reaches this threshold it cannot receive funding without a formal business case.
The business case is a deeper dive of the idea and requires additional financial data and risk evaluation. Key components of the business case includes the data captured from the ideation phase with further elaboration of the following:
Note that there may be several versions of the business case which may include different scenarios. Scenarios can be alternative use of capital or the same scenario with multiple vendors. Establishing a framework that includes scenario modeling will speed up the decision process and increase time to market. Similar to the ideation phase, business cases will have a predefined workflow that includes feasibility review, management approval and ready for execution. The work flow can be very simple to complex including adding policy and rule-based decision trees. After full vetting of the business case the capital appropriation request is sent to management for approval and then ready for execution and performance management (Part IV of this series).
