on June 23, 2021 in Capital Planning

Capital Planning Performance Management

Part IV: Capital Planning Performance Management

So far, we have covered setting up the overall connected capital planning framework.  The final step in the connected capital planning framework is execution, performance management and benefits realization referenced here as Capital Planning Performance Management.

Capital Planning Performance Management is a process that tracks capital spend over the lifecycle of the investment. For smaller investments, the capital may be a one-time purchase and for larger multi-year investments, it can be multiple purchases over a period of time. Understanding the cashflows and business impact over the investment period is important. Additionally, performance tracking also includes tracking the health of the investment and tracking benefits realization. We suggest tracking budget, benefit, on target to deliver, and overall health. This can be done in a simple RAG (Red, Amber, Green) status format.

Another key element of performance management is benefits tracking. Benefits are both financial benefits and non-financial benefits such as operational performance.  Financial benefits are typically cost savings, cost avoidance, and revenue generation. CapEx projects can deliver on any one or a combination of these benefits.  For example, replacing end of life machines can drive significant savings in ongoing maintenance and avoid expensive repair costs.  Adding more capacity in a factory can double production and significantly increase revenues.  These are assumption typically made in the CAR or business case proposal process and it is vital to test and monitor these assumptions over time.

Performance benefits are also important to consider in the decision process and equally important in the performance tracking process.  For example, an investment that promised to increase production in a manufacturing plant or creates operational efficiencies should be monitored and tracked over time to ensure it is delivering on the intended benefit.  This requires a purposeful approach that requires people, process and tools, strong executive management support, a well-defined process and tools to maintain the integrity and transparency of the data.  Benefits often occur after the initial setup period which is why we created the “value period”.  The value period follows the setup period and is usually set from two to five years.  The benefits identified in the investments are treated as a plan or target and actual results are tracked, monitored and recorded over time.  The outcome of performance tracking is to be able to course correct if investments are not delivering as intended.


In Summary

If implemented and managed correctly, connected capital planning can deliver tremendous benefits to any organization.  We heard the old saying, “better planning produces better results.” This particularly holds true for capital planning.  Some of our customers report an 8X ROI after using our solution for the first year.  This is a result of better processes and more accurate planning data.  ROI is also achieved by introducing objectivity to the analysis and decision process and driving accountability through performance management.  Our suggestion is to get on a crawl, walk, run program.  Identify the 20% of improvement you can make in your overall process that will have an 80% impact.  If you are uncertain on how to get started let one of our professionals do a quick assessment and make recommendations.

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