Finario

Whether you consider 50 capital projects a year, 500 or 5,000, there are myriad factors to evaluate in determining which deserve to be budgeted, and why. You want to consider projects individually and holistically to ensure the right balance of sustaining operations while best positioning the company for growth. And looking ahead, you want to ensure that essential data for every project “travels” with it through the budgeting, approval, forecasting and reporting cycles.

Purpose-built enterprise Capex software automates and streamlines critical Capex processes, and enables finance and operations leaders to assess and consistently compare each material project’s strategic value, ROI and other investment criteria to make the most informed decisions. 

Key benefits include:

• A more efficient capital budgeting process and annual plan for Capex investments
• ROI metrics calculated correctly and consistently on all material projects
• Capex request approval process moves smoothly without manual intervention or workarounds
• Actuals fed automatically from your ERP(s) into a single system of record for capital forecasting and variance analysis
• Makes it easy for HQ at all times to know exactly where each business unit and all of its projects stand in relation to budget and proposed completion dates
• Post-completion reviews can be easily performed on time and that intelligence leveraged by others on their projects

A project budget is simply the total funding that has been approved to complete a specific capital project, independent of time frame.

A capital budget is the total funding an organization has set aside in one fiscal year to fund all of the expenses occurring on approved projects during that fiscal year.

As an example, the difference can be seen clearly in a particular expenditure within a project that was expected to occur in October of FY 2021 that is delayed to March of FY 2022. There is no change to the project budget but there is a positive variance for the FY 2021 capital budget as well as the need to allocate funds from the FY 2022 capital budget to complete the project. 

So when evaluating applications that purport to support capital budgeting, be sure to validate whether it’s truly capital budgeting and whether, for example, the system can provide historically accurate budget and variance reporting over the years as your organizational structure changes due to growth, M&A and the evolving nature of your business.

Vendors of generic workflow tools tout the “flexibility” and “customization” that their systems provide as the answer to a multitude of problems. But for a process that is inherently financial such as Capex, these attributes are a mirage, describing nothing more than the ability to label and move fields around on a page form. The fields themselves are inherently dumb with no understanding of fiscal years or how all the complex data associated with capital planning inter-relates. No matter how much time, effort or cost one might put into customizing such a system, the end result will inevitably be a pale imitation of a true financial planning system purpose built for the job. You wouldn’t consider for even a moment trying to custom build an ERP or CPM/EPM solution on such a tool, and trying to create a capital planning on such a narrow foundation would be an equally risky and costly mistake.