At least once per year you’re faced with justifying the complexities and nuances of your proposed CapEx project.
You start the planning process a few months before the new fiscal year, only to have your project de-prioritized based on other organizational needs. Every organization is challenged to reduce costs while increasing profit.
So how do you ensure your project receives the CapEx funding it needs to be successful?
We think the answer is to collaborate with your partners to create a solid business case and then recruit your internal stakeholders to all commit to a proven budget.
The way budgeting typically works: sales goals are set first for the next year, followed by the proposed budget. Organizations look at historical data to set the budget for following year, adding a slight increase such as 3-5%. The wild card in budgeting materializes as unexpected SG&A costs that can throw a wrench into the works (e.g., health insurance which can increase by double digits at a time).
All organizations (rightfully) prioritize projects that adhere to and ensure structural integrity. Once those are addressed, there’s an internal competition between CapEx projects to ensure appropriate funding is allocated for the projects that will drive efficiency or productivity. From our experience, roughly 20% of planned projects are executed with the full funding needed.
An ideal project incorporates process improvements that improve efficiency or throughput while reducing costs or headcount, all within an ideal 2-year to 3-year ROI. Whether your project needs a budget of $50K or $500K, it’s competing with several projects in a pool of limited funds.
The bottom line: gaining priority for your CapEx project means providing a solid business case for why your project is deserving of the funding.
Start by collaborating with trusted partners, those that can translate your desired outcomes and goals into a tangible plan or roadmap. Partners that will think broadly about how your project can help your entire organization succeed, looking at all the advantages, and the speed at which its ROI can be achieved.
Example: You want to put a new conveyor system into your facility to increase efficiency.
At PeakLogix, we approach this by starting a collaborative process with asking “Why?” We dive into understanding what you’re really trying to achieve with a new conveyor system to provide options, understanding the problem so we can provide a solution that’s targeted and viable. We consult with you to produce high level layouts and concepts that clearly outline the costs and gains, including: efficiency and productivity gains, increase in sales, reduction in FTE staff, greater throughput, improved response time, projected ROI, etc.
This collaboration begins with collecting all the data available to provide insight into current operations and how we can design a solution to achieve your organizational goals. From there, we further refine the options and schematics available including their associated gains and projected ROI.
While these are the measurable outcomes, there are several soft benefits with tangible results that should not be overlooked when outlining why your project is worthy of CapEx financing:
• Safer workplace ergonomics that can help reduce employee absentee and worker’s compensation claims.
• Higher employee retention due to predictable shift scheduling, greater workplace environment, or increased employee morale (particularly in a low unemployment economy, employee recruitment and retention are vital to predicting and maintaining operational costs)
• Marketing opportunities gained by showing your state-of-the-art operations to potential clients
Collaborate with an integrator who will provide insight and knowledge to the challenges you’re facing, who will consult creatively about the solutions that match your available or proposed CapEx project, and who will help outline the appropriate budget for your goals. The end result is a strong business case that provides your project ideals with varying implementation phases over a comprehensive project roadmap.
At PeakLogix, we excel at reviewing our clients’ current operations, outlining costs and expected returns to match your identified goals, then tailoring the right type of solution to your needs. Contact us to learn more about how we can help you build a business case designed to influence your project’s financing.