Capital planning: A beginner’s guide to understanding the basics

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Capital planning: A beginner’s guide to understanding the basics

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Just like yearly budgets, goal planning and employee reviews, planning and management of the capital plan should occur in a regular, annual cycle. But first, let’s talk about capital plan management basics. There are various tools, processes and team players to understand before beginning the capital planning process.

What is capital planning?

Capital planning is an annual process of budgeting for resources where an optimistic spend curve is defined, planned, socialized and approved by operations, stakeholders and finance.

Key terms for understanding capital planning

Capital request form.

The form used to standardize the necessary information for each project so that the planning group can vet the project.

Capital project drivers

Every company has different drivers, but the common drivers are typically growth, obsolescence, regulatory, strategic/alignment to goals and cost avoidance/reduction.

Capital planning group

Group responsible for management, including vetting the list of proposed capital projects, prioritizing and reprioritizing the capital, seeking capital management committee approval and managing the ongoing changes.

Capital management committee

The governance committee responsible for approving the group’s proposed funding and spending plan.

Capital project approval process

This process is typically company specific and includes all approval requirements, stage gates, etc. to ensure cost, schedule and budget control and conformance.

Minor versus major capital

Every company has its own unique delineation, but these usually entail different approval processes: Minor capital has fewer approvals, and major capital has more approvals.

Operating (routine) capital versus new capital

A company may choose to have a bulk approval process for operating capital (a bunch of smaller lower dollar projects) and not require these projects to be individually approved.

Has membership on both the capital planning group and the capital management committee and is the approver of capital funds.

Management programs

There are a handful of management programs, including Attainia, FINARIO and Accruent, that can provide the management platform for your needs.

Facility manager

Has the responsibility for capital plan management for the company or the company’s site.

Business unit leaders

The leaders of the operating groups who sit on the capital management committee.

Monthly variance report

Issued to gain actionable visibility of the plan and to keep management and stakeholders informed.

Monthly capital expenditures report

Issued by the finance to keep members, management and stakeholders in the loop.

The list can go on and on, but suffice it to say, there are quite a few tools and processes that are essential for keeping the process running throughout the year. Additionally, we’ve compiled a list with a complete breakdown of planning activities by season to help with your annual planning efforts.

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What Is Capital Planning?

Capital Planning Graphs and Numbers Printed On Paper

The act of a formal planning process requires you and your company to zoom out, way out. So often individuals within an organization get caught up with the day-to-day that they hardly have an opportunity to think about next quarter’s strategies, much less one to five years down the road.

Capital Planning is here to help.

Even those companies that do have a “5 Year Plan” often fail to align those goals with a formal capital planning process. Without doing so, many of these plans turn out to be not much more than “pie in the sky dreams” or even more simply put, tag lines, and “company vision statements.”

Of course, tying in a Capital Plan with strategic plans is more work, but without it, you could run into problems.

Below we are going to explain the basic components of the Capital Planning process and steps you can follow to implement a Capital Planning team within your role and/or organization.

Capital Planning Basics

  • Capital Planning  – The process of budgeting resources for the future of the organization’s long-term plans. Not limited to plans already in place, but also on the projection of future projects and their gains and losses.
  • Capital Request Form  – This form is created and used to standardize the process of information gathering for each capital planning project detail. This form allows the planning team member or members to quickly scan and vet the information concerning its specific project.
  • Capital Project Drivers  – Every organization has different definitions of drivers, but typical common drivers are growth, obsolescence, regulatory, strategic, alignment to the project goals, and cost reduction and/or avoidance.
  • Capital Planning Group  – This is the team or team member responsible for the management of the Capital Planning project. They are generally in charge of vetting the capital request forms for sub-projects, prioritizing and reprioritizing the available capital, condensing, and reformatting project information for presentation to management and executive approval.
  • Capital Management Committee  – These are the managerial or executive persons or groups responsible for approving or denying the Capital Planning project’s funding and spending plans.
  • Capital Project Approval Processes  – This process is typically unique to your own company, but these usually require different formatting, version control, and approval processes. Many companies have different Capital Planning approval processes for differing amounts of capital. For example, one company might have any project expected to have a spend of over $500,000 be required to go through their major approval process, while another company might consider this figure to be far below their risk level, and only require amounts of 10 million dollars or more to be fully vetted.
  • Minor Versus Major Capital  – As mentioned above, each company will have its own risk tolerances. Minor Capital categories require little to no formal approval while Major Capital categories might require months of intensive research and several rounds of vetting before it moves to a board of directors vote for approval. Each company will have its own delineation on Minor and Major capital categories for its Capital Planning processes.
  • Operating Capital Versus New Capital  – An example of minor capital. Generally, routine or Operating Capital consumes the bulk of business operations and is standard and expected. These projects can have bulk or automated approval as long as they fall within company parameters.
  • Finance  – This portion of your Capital Planning team has a hand in both the Capital Planning Group side, as well as the Capital Management side. For instance, you might have a financial analyst on the planning side, and the CFO on the Management side that has the final say and can officially approve capital funds to be spent.
  • Management Programs  – Inpensa provides a unique and custom-built Capital Planning  management software program  that can provide the platform you and your team need to effectively manage version control; be team enabled to allow for edits without sending files via email; and format reports ready for your Capital Management Committee’s approval.
  • Business Unit Leaders  – These are the leaders of the multiple operating groups who sit on the Capital Management Committee for the approval process. We already talked about the Finance portion above (CFO) but this could be anyone from a manager of a department to the president, CEO, or even board of directors, if the project is large enough.
  • Monthly Variance Report  – These reports are sent out monthly (sometimes quarterly) to inform the decision-makers of incremental progress. They also serve as an early warning detection for everyone on the capital planning team. Detecting overspends, delays, early wins, and budget surpluses about every 30 days. These are increasingly important as the modern world causes pricing and logistics to change by the minute, versus changes by the month, quarter, or year in the past.

Now that we have a basic rundown of the who and what is working with the Capital Planning Process, let’s  continue to why Capital Planning and using software you can trust is important.

Planning Helps You Avoid Problems

Capital Planning is a tight rope. There are, on one hand, executives, and heads of departments who over-promise, and expect you and the Capital Planning team to “make the numbers work” on near-impossible projects, and on the other hand there is a team of financial professionals who often times get into a habit of saying “it doesn’t make financial sense for the company to pursue this project/idea/dream at this time.”

This may be done without doing the true due diligence every capital investment requires. Inpensa offers a custom-built Management Software  that allows every company to complete the due diligence needed and demanded for both sides of this tight rope.

On the first hand, a program like Inpensa’s allows you to fiscally prove to a senior member of the organization that a Capital Expenditure/Investment doesn’t align with the current goals of the organization with clear facts and numbers.

The opposite side of this tight rope is also solved by Inpensa’s offering of a strong and streamlined solution that allows the Capital Planning team to cut through the busy work of structuring, finding Excel formulas they have long forgotten, and formatting version after version to fit individual aesthetic preferences with a pre-formatted reporting dashboard.

With all of this, a Capital Planning team can quickly get to work on the actual numbers and planning of every project, not just the Major Capital categories. This leads to increased performance on the Capital Planning team and increased profits, lower risk, and more effective long-term success for the overall organization.

Steps For Effective Capital Planning

  • Ground Your Plan In Reality  – Many organizations that are starting the capital planning process from scratch make the mistake of not making plans based on past performance and present numbers. Organizations often make the mistake of desiring 300% growth in the next five years, when the past five years have produced 85% growth. It is much better to be realistic and grow 105% in the next five years with a Capital Plan based on reality, than to wish for 300% growth and get 80% again. A thorough assessment of the prior five-year financials and operating performance is key to understanding liquidity needs and drivers in the future for performance, along with the macro view of your organization’s business and commodity cycles. Dream big, but have a plan in place to produce your organization’s vision.
  • Define Your Companies Five-Year Strategic Plan  – Plans and priorities are a requirement, and tools like Inpensa’s Capital Planning software can help you with expected capital requirements and how they can align with the organization’s long-term goals.
  • Financial Modeling  – This is where Inpensa thrives. Financial modeling is what Inpensa makes easy. Without a program like  Inpensa’s case management software , you can quickly lose yourself within increasingly cumbersome and non-uniform financial models. Financial models quantify the impact of capital, ground your numbers with historical performance, and give decision makers easy to read financial reports and understand overviews on the expected capital needs and gains as projects move forward.
  • Modeling Alternatives  – Use software like  Inpensa’s  to design alternatives to capital expenditures and deployment. Some of the most successful ideas for organizational success come from the Capital Planning team asking “What if?” What if we tweaked this plan? What if we explored this opportunity instead? Big wins come from using modeling software that allows you to confidently and easily explore all the options for your organization.
  • Implement the Plan  – Meet with the decision-makers within your organization. Ask them what the Capital Planning structure and approval process is for your company. Now it’s time to get organized. Play by the rules and policies provided to you, document, research, model, and present your plan. Get approval, provide monthly reports, and meet your goals.
Inpensa knows Capital Planning comes with many frustrations, but our project management software is not one of them.

Follow the above instructions, get to know your team, and meet your goals with Inpensa’s custom software and Capital Planning advice and modeling. Do not let your companies Capital Plan become just another company “vision.”

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capital planning business definition

Capital planning: A beginners guide to understanding the basics

Capital planning should be done annually and there are many aspects to consider when putting together a comprehensive plan..

Planning and management of the capital plan should occur in a regular, annual cycle. But first, let’s talk about capital plan management basics. There are various tools, processes and team players to understand before beginning the capital planning process:

  • Capital request form –  The form used to standardize the necessary information for each project so that the planning group can vet the project.
  • Capital project drivers –  Every company has different drivers, but the common drivers are typically growth, obsolescence, regulatory, strategic/alignment to goals and cost avoidance/reduction.
  • Capital planning group –  Group responsible for management, including vetting the list of proposed capital projects, prioritizing and reprioritizing the capital, seeking capital management committee approval and managing the ongoing changes.
  • Capital management committee –  The governance committee responsible for approving the group’s proposed funding and spending plan.
  • Capital project approval process –  This process is typically company specific and includes all approval requirements, stage gates, etc. to ensure cost, schedule and budget control and conformance.
  • Minor versus major capital –  Every company has its own unique delineation, but these usually entail different approval processes: Minor capital has fewer approvals, and major capital has more approvals.
  • Operating (routine) capital versus new capital –  A company may choose to have a bulk approval process for operating capital (a bunch of smaller lower dollar projects) and not require these projects to be individually approved.
  • Finance – Has membership on both the capital planning group and the capital management committee and is the approver of capital funds.
  • Management programs – There are a handful of management programs that can provide the management platform for your needs.
  • Facility manager – Has the responsibility for capital plan management for the company or the company’s site.
  • Business unit leaders –  The leaders of the operating groups who sit on the capital management committee.
  • Monthly variance report –  Issued to gain actionable visibility of the plan and to keep management and stakeholders informed.
  • Monthly capital expenditures report –  Issued by the finance to keep members, management and stakeholders in the loop.

The list can go on and on, but suffice it to say, there are quite a few tools and processes that are essential for keeping the process running throughout the year.

This article originally appeared on  CRB’s website .  CRB  is a CFE Media content partner.

Original content can be found at www.crbusa.com .

Do you have experience and expertise with the topics mentioned in this content? You should consider contributing to our CFE Media editorial team and getting the recognition you and your company deserve. Click here to start this process.

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This guide provides insights on setting clear strategic goals, managing projects and programs from start to finish, keys to accurate forecasting and analyses, and best ways to collaborate with agencies.

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The process of successful capital planning is critical to the long-term health of your construction program. Whether it is new construction, a renovation project, or an expansion, accurately planning and budgeting for each phase of your program is (probably) your top priority. How do you decide which programs and projects to fund, and how do you gather all pertinent information to help you make those decisions?

It’s important to remember that success may look different across agencies. Having clear strategic priorities laid out at the very beginning of your capital planning process will help your agency know how to plan, what to plan, and how to track and monitor the information needed. Picking the right projects, accurate forecasting, and streamlined communication are goals that any agency can achieve with the right tools in place.

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Capital Planning: How to Develop and Implement Your Capital Plan

1. understanding the importance of capital planning, 2. assessing your organizations capital needs, 3. setting goals and objectives for your capital plan, 4. conducting a comprehensive financial analysis, 5. identifying and prioritizing capital projects, 6. developing a funding strategy for your capital plan, 7. execution and monitoring, 8. evaluating the success of your capital plan, 9. updating and revising your capital plan.

capital planning is the process of identifying, prioritizing, and financing long-term investments that support the strategic goals of an organization. These investments can include physical assets, such as buildings, equipment, and infrastructure, as well as human capital, such as training, research, and development. Capital planning helps organizations allocate their limited resources effectively and efficiently, while ensuring that their capital assets are maintained and upgraded to meet current and future needs.

In this section, we will explore the importance of capital planning from different perspectives, such as financial, operational, and strategic. We will also discuss some of the benefits and challenges of capital planning, and provide some best practices and tips for developing and implementing a successful capital plan. Here are some of the topics that we will cover:

1. Financial perspective: Capital planning helps organizations optimize their financial performance and sustainability by balancing short-term and long-term objectives , reducing costs and risks , and enhancing returns and value. Capital planning also helps organizations comply with regulatory and accounting standards, and communicate their financial position and outlook to stakeholders. Some of the financial aspects of capital planning include:

- Budgeting and forecasting: Capital planning requires estimating the costs and benefits of various capital projects and initiatives, and allocating funds accordingly. Budgeting and forecasting help organizations plan for their future cash flows and financial needs, and monitor their progress and performance .

- Financing and funding: Capital planning involves identifying and securing sources of financing and funding for capital projects and initiatives. Financing and funding can come from internal or external sources, such as retained earnings, debt, equity, grants, loans, or partnerships. Capital planning helps organizations evaluate and select the optimal mix of financing and funding options , and manage their financial obligations and risks.

- Valuation and analysis: Capital planning requires assessing the value and impact of capital projects and initiatives on the organization's financial performance and sustainability. Valuation and analysis help organizations compare and prioritize different capital options, and measure and report their outcomes and results. Some of the valuation and analysis tools include net present value (NPV), internal rate of return (IRR), payback period, return on investment (ROI), and cost-benefit analysis (CBA).

2. Operational perspective: Capital planning helps organizations improve their operational efficiency and effectiveness by aligning their capital assets with their operational needs and capabilities, and enhancing their quality and productivity. Capital planning also helps organizations adapt to changing market and customer demands, and leverage new technologies and innovations. Some of the operational aspects of capital planning include:

- Asset management: Capital planning requires managing the life cycle of capital assets, from acquisition to disposal. asset management helps organizations optimize the utilization and performance of their capital assets, and ensure their reliability and availability . Asset management also helps organizations plan for the maintenance, repair, and replacement of their capital assets, and minimize their downtime and disruption.

- Project management: Capital planning involves managing the execution and delivery of capital projects and initiatives, from initiation to closure. project management helps organizations define and scope their capital objectives and requirements, and coordinate and control their resources, activities, and risks. Project management also helps organizations track and evaluate their capital progress and performance, and ensure their quality and compliance .

- Change management: Capital planning entails managing the change and transition that result from capital projects and initiatives, both internally and externally. Change management helps organizations prepare and support their stakeholders, such as employees, customers, and partners, for the adoption and integration of new capital assets and processes. Change management also helps organizations communicate and engage with their stakeholders , and address their feedback and concerns.

3. Strategic perspective: Capital planning helps organizations achieve their strategic vision and mission by supporting their strategic goals and objectives , and creating and sustaining their competitive advantage . Capital planning also helps organizations respond to and shape their external environment, such as industry trends, market opportunities, and social issues. Some of the strategic aspects of capital planning include:

- Strategy formulation: Capital planning requires developing and articulating a clear and coherent capital strategy that aligns with the organization's overall strategy. Strategy formulation helps organizations identify and prioritize their strategic capital needs and opportunities, and define their capital vision and direction. Strategy formulation also helps organizations establish and communicate their capital values and principles, and foster a culture of capital excellence.

- Strategy implementation: capital planning involves implementing and executing the capital strategy through various capital projects and initiatives. Strategy implementation helps organizations translate their capital vision and direction into concrete and actionable plans and programs, and allocate and mobilize their capital resources and capabilities. Strategy implementation also helps organizations monitor and adjust their capital plans and programs, and ensure their alignment and coherence.

- Strategy evaluation: Capital planning requires evaluating and reviewing the capital strategy and its outcomes and impacts. Strategy evaluation helps organizations measure and assess their capital performance and results, and determine their capital strengths and weaknesses . Strategy evaluation also helps organizations learn and improve from their capital experiences and feedback, and identify and address their capital gaps and challenges.

Understanding the Importance of Capital Planning - Capital Planning: How to Develop and Implement Your Capital Plan

One of the most important steps in capital planning is assessing your organization's capital needs. This involves identifying the current and future goals of your organization, the resources required to achieve them, and the gaps or challenges that may hinder your progress. Assessing your capital needs also helps you prioritize your projects, allocate your funds, and measure your outcomes. In this section, we will discuss some of the key aspects of assessing your capital needs, such as:

1. Conducting a situation analysis. This is the process of evaluating your organization's internal and external environment , including your strengths, weaknesses, opportunities, and threats (SWOT). A situation analysis can help you understand your current position, your competitive advantage, your market trends, and your stakeholder expectations. For example, a nonprofit organization that provides health services may conduct a situation analysis to identify the needs and preferences of their beneficiaries, the availability and quality of their facilities and equipment, the regulations and policies that affect their operations, and the funding sources and partnerships that support their mission.

2. Defining your vision and mission. These are the statements that describe your organization's purpose, values, and long-term aspirations . Your vision and mission can guide your decision-making and align your actions with your goals. They can also communicate your identity and value proposition to your stakeholders, such as your customers, donors, employees, and partners. For example, a social enterprise that sells fair trade products may have a vision of creating a more equitable and sustainable world, and a mission of empowering marginalized producers and consumers through ethical trade.

3. Setting your objectives and indicators. These are the specific and measurable targets that you want to achieve within a certain time frame and with a certain budget. Your objectives and indicators should be SMART: Specific, Measurable, Achievable, Relevant, and Time-bound. They should also be aligned with your vision and mission, and reflect your priorities and values. For example, a school that wants to improve its academic performance may set an objective of increasing the average test scores of its students by 10% in one year, and use an indicator of the percentage of students who score above the national average.

4. Identifying your capital projects and programs. These are the initiatives that require significant investment in physical assets, such as buildings, equipment, vehicles, or technology. Your capital projects and programs should support your objectives and indicators, and address your capital needs and gaps. They should also be evaluated based on their feasibility, impact, cost, and risk. For example, a hospital that wants to expand its services may identify a capital project of building a new wing, and a capital program of upgrading its medical devices and software.

Assessing Your Organizations Capital Needs - Capital Planning: How to Develop and Implement Your Capital Plan

In this section, we will delve into the crucial process of setting goals and objectives for your capital plan. It is essential to establish clear and well-defined goals to guide your capital planning efforts effectively. By doing so, you can align your resources and investments with your organization's strategic priorities.

1. Understand Your Organization's Vision and Mission: To begin, it is important to have a deep understanding of your organization's vision and mission. These overarching statements provide the foundation for your capital planning goals. Consider how your capital investments can contribute to the realization of your organization's long-term objectives.

2. Assess Current and Future Needs: Conduct a comprehensive assessment of your organization's current and future needs. This involves evaluating your existing infrastructure, equipment, and facilities, as well as anticipating future growth and changes. By understanding your organization's needs, you can identify areas that require investment and prioritize them accordingly.

3. Identify key Performance indicators (KPIs): Key Performance Indicators (KPIs) are measurable metrics that reflect the success of your capital plan. Determine the KPIs that are most relevant to your organization's goals and objectives. For example, you may track metrics such as return on investment (ROI), cost savings, or customer satisfaction. These KPIs will help you evaluate the effectiveness of your capital plan and make data-driven decisions .

4. set Specific and measurable Goals: Once you have identified your organization's needs and KPIs, it's time to set specific and measurable goals for your capital plan. These goals should be aligned with your organization's strategic priorities and provide a clear direction for your capital investments. For instance, your goals could include upgrading outdated infrastructure, improving operational efficiency , or enhancing customer experience .

5. Prioritize Goals and Allocate Resources: Not all goals can be pursued simultaneously due to resource constraints. Prioritize your goals based on their importance and urgency . Consider factors such as financial resources, timeframes, and potential impact. By allocating resources effectively , you can ensure that your capital plan addresses the most critical needs of your organization.

6. Develop Action Plans: Once your goals are established, develop action plans to achieve them. Break down each goal into actionable steps and assign responsibilities to relevant stakeholders. Consider creating a timeline to track progress and ensure accountability. Action plans provide a roadmap for implementing your capital plan and help you stay on track towards achieving your objectives.

Remember, setting goals and objectives for your capital plan is a dynamic process. Regularly review and reassess your goals to adapt to changing circumstances and emerging opportunities. By setting clear goals and aligning your capital investments with your organization's strategic priorities, you can maximize the impact of your capital plan and drive long-term success .

Setting Goals and Objectives for Your Capital Plan - Capital Planning: How to Develop and Implement Your Capital Plan

One of the most important steps in capital planning is conducting a comprehensive financial analysis . This is the process of evaluating the current and projected financial performance of the organization, as well as the feasibility and impact of the proposed capital projects. A financial analysis helps to identify the strengths and weaknesses of the organization, the opportunities and threats in the external environment, and the risks and benefits of the capital plan. It also helps to align the capital plan with the strategic goals and objectives of the organization , and to communicate the plan to the stakeholders.

A comprehensive financial analysis consists of several components, such as:

1. financial statements analysis : This involves examining the historical and projected income statements , balance sheets, and cash flow statements of the organization, and calculating various financial ratios and indicators . These include profitability ratios, liquidity ratios, solvency ratios, efficiency ratios, and growth ratios. The financial statements analysis helps to assess the financial health and performance of the organization, and to compare it with the industry benchmarks and competitors . Some examples of financial ratios are:

- Return on assets (ROA) : This measures how efficiently the organization uses its assets to generate income . It is calculated by dividing the net income by the average total assets. A higher ROA indicates a higher profitability and asset utilization. For example, if the net income is \$100,000 and the average total assets are \$500,000, then the ROA is 20%.

- Current ratio : This measures the ability of the organization to pay its short-term obligations with its current assets. It is calculated by dividing the current assets by the current liabilities . A higher current ratio indicates a higher liquidity and solvency. For example, if the current assets are \$200,000 and the current liabilities are \$100,000, then the current ratio is 2.

- debt-to-equity ratio : This measures the degree of leverage or indebtedness of the organization. It is calculated by dividing the total liabilities by the total equity. A higher debt-to-equity ratio indicates a higher financial risk and lower financial flexibility. For example, if the total liabilities are \$300,000 and the total equity is \$200,000, then the debt-to-equity ratio is 1.5.

2. financial projections and scenarios analysis : This involves estimating the future financial outcomes of the organization and the capital plan under different assumptions and conditions. These include the expected revenues, expenses, cash flows, and financial ratios of the organization, as well as the net present value (NPV), internal rate of return (IRR), payback period, and break-even point of the capital projects . The financial projections and scenarios analysis helps to evaluate the viability and attractiveness of the capital plan, and to test its sensitivity and robustness to various factors. Some examples of factors are:

- Growth rate : This is the percentage change in the revenues or expenses of the organization over a period of time. It can be based on the historical trends, the market demand, the competitive position, or the strategic goals of the organization . A higher growth rate indicates a higher potential and opportunity for the organization. For example, if the revenues of the organization are \$1,000,000 in year 1 and \$1,100,000 in year 2, then the growth rate is 10%.

- discount rate : This is the interest rate used to discount the future cash flows of the capital projects to their present value. It reflects the opportunity cost of capital, the risk premium, and the inflation rate. A higher discount rate indicates a higher required return and a lower present value. For example, if the cash flow of a capital project is \$100,000 in year 1 and the discount rate is 10%, then the present value of the cash flow is \$90,909.

- Uncertainty : This is the degree of variability or unpredictability of the future financial outcomes of the organization and the capital plan. It can be caused by internal factors, such as operational inefficiencies, human errors, or technological failures, or external factors, such as market fluctuations, regulatory changes, or environmental shocks. A higher uncertainty indicates a higher risk and a lower confidence. For example, if the cash flow of a capital project has a 50% chance of being \$100,000 and a 50% chance of being \$50,000, then the expected value of the cash flow is \$75,000 and the standard deviation of the cash flow is \$25,000.

3. Financial benchmarks and best practices analysis : This involves comparing the financial performance and practices of the organization and the capital plan with those of the industry leaders, peers, and standards. This helps to identify the gaps and opportunities for improvement , and to adopt the proven and effective methods and techniques for financial management and planning. Some examples of financial benchmarks and best practices are:

- Industry average : This is the arithmetic mean of the financial ratios or indicators of the organizations in the same industry or sector. It provides a general reference and a common ground for comparison. For example, if the ROA of the organizations in the same industry is 15%, then the industry average ROA is 15%.

- Industry leader : This is the organization that has the highest or the best financial ratio or indicator in the industry or sector. It provides a competitive edge and a aspirational goal for comparison. For example, if the ROA of the organization with the highest ROA in the same industry is 25%, then the industry leader ROA is 25%.

- Industry standard : This is the minimum or the acceptable level of the financial ratio or indicator in the industry or sector. It provides a compliance requirement and a quality assurance for comparison. For example, if the minimum ROA required by the regulators or the investors in the same industry is 10%, then the industry standard ROA is 10%.

By conducting a comprehensive financial analysis, the organization can gain a deeper and broader understanding of its financial situation and potential , and make informed and rational decisions for its capital plan. A financial analysis can also help to communicate the rationale and the benefits of the capital plan to the stakeholders, and to secure their support and approval. Therefore, a financial analysis is an essential and valuable tool for capital planning.

Conducting a Comprehensive Financial Analysis - Capital Planning: How to Develop and Implement Your Capital Plan

One of the most important and challenging aspects of capital planning is identifying and prioritizing the capital projects that will best serve the organization's goals and needs. Capital projects are long-term investments that require significant resources and have a lasting impact on the organization's performance and value. Therefore, it is essential to have a systematic and objective process for selecting and ranking the projects that will deliver the most benefits and align with the strategic plan. In this section, we will discuss some of the key steps and criteria for identifying and prioritizing capital projects, as well as some of the common challenges and best practices in this area.

Some of the steps and criteria for identifying and prioritizing capital projects are:

1. Define the scope and objectives of the capital plan. Before starting to identify and prioritize the potential projects, it is important to have a clear understanding of the purpose and scope of the capital plan, as well as the specific objectives and outcomes that the organization wants to achieve. This will help to narrow down the range of possible projects and ensure that they are relevant and aligned with the organizational vision and mission . For example, the objectives of the capital plan could be to improve the quality of service, increase the efficiency and productivity , enhance the safety and security, or expand the capacity and market share of the organization.

2. Identify the potential projects and sources of information. The next step is to generate a list of possible capital projects that could meet the objectives and scope of the capital plan. This can be done by using various sources of information, such as internal and external data, stakeholder feedback, industry trends, best practices, and benchmarking. The potential projects should be described in sufficient detail to allow for a preliminary assessment of their feasibility, costs, benefits, and risks. For example, a potential project could be to upgrade the IT infrastructure, renovate the facilities, acquire new equipment, or launch a new product or service .

3. Assess and rank the projects based on multiple criteria. Once the potential projects have been identified, the next step is to evaluate and compare them based on multiple criteria that reflect the objectives and priorities of the organization. Some of the common criteria that can be used are: financial viability, strategic alignment, operational impact, social and environmental impact , risk and uncertainty, and stakeholder support. Each criterion can be assigned a weight or a score based on its relative importance, and the projects can be ranked according to their total score or net present value. For example, a project that has a high financial return, a strong strategic fit, a positive operational effect, a low environmental impact, a moderate risk level, and a high stakeholder support would rank higher than a project that has a low financial return, a weak strategic fit, a negative operational effect, a high environmental impact, a high risk level, and a low stakeholder support.

4. Validate and refine the project ranking and selection. The final step is to validate and refine the project ranking and selection by conducting a sensitivity analysis , a scenario analysis, and a peer review. A sensitivity analysis is used to test how the project ranking and selection would change if some of the assumptions, parameters, or weights of the criteria were modified. A scenario analysis is used to test how the project ranking and selection would change if some of the external factors or uncertainties were different. A peer review is used to solicit feedback and input from other experts, stakeholders, or decision-makers who can provide additional insights, perspectives, or validation. For example, a sensitivity analysis could show that a project that ranks high under the base case scenario would rank low under a pessimistic scenario, or a peer review could reveal that a project that ranks low under the original criteria would rank high under a different set of criteria.

Some of the challenges and best practices in identifying and prioritizing capital projects are:

- Challenge: Balancing the competing and conflicting interests and expectations of different stakeholders, such as customers, employees, shareholders, regulators, suppliers, competitors, and communities.

- Best practice: Engaging and communicating with the stakeholders throughout the capital planning process, and using a transparent and consistent methodology for project ranking and selection that can be explained and justified to the stakeholders.

- Challenge: Dealing with the uncertainty and complexity of the future environment, such as the changes in the market demand, customer preferences, technology, regulations, competition, and social norms.

- Best practice: Using a robust and flexible capital planning framework that can accommodate and adapt to the changes and uncertainties, and incorporating contingency plans and options for the capital projects that can be adjusted or modified as needed.

- Challenge: Aligning the capital projects with the strategic plan and the organizational culture, values, and vision.

- Best practice: Establishing a clear and shared vision and mission for the organization, and ensuring that the capital projects are consistent and supportive of the strategic plan and the organizational culture, values, and vision.

I've been very engaged in Illinois and Chicago civic activities for a long time; mostly around building businesses and helping entrepreneurs grow companies, but also around education and education reform. Bruce Rauner

A capital plan is a long-term plan that outlines how an organization will invest in its physical assets, such as buildings, equipment, infrastructure, and technology. A capital plan helps an organization achieve its strategic goals, improve its performance, and enhance its value. However, a capital plan also requires a significant amount of funding, which can be challenging to secure in a competitive and uncertain environment. Therefore, developing a funding strategy for your capital plan is a crucial step that can determine the success or failure of your capital projects.

A funding strategy is a plan that identifies and evaluates the potential sources of funding for your capital plan, and how you will allocate and manage those funds over time. A funding strategy should align with your capital plan objectives, reflect your risk appetite and financial capacity, and consider the trade-offs and implications of different funding options. A funding strategy should also be flexible and adaptable to changing circumstances and opportunities.

There are many factors that can influence your funding strategy, such as the size, scope, and duration of your capital plan, the availability and cost of funding sources , the regulatory and legal requirements , the stakeholder expectations, and the market conditions. Therefore, developing a funding strategy for your capital plan is not a one-time exercise, but a continuous process that requires careful analysis, evaluation, and communication. Here are some steps that can help you develop and implement your funding strategy for your capital plan:

1. Define your funding objectives and criteria. The first step is to clarify what you want to achieve with your funding strategy, and what criteria you will use to evaluate and compare different funding options . For example, some common funding objectives are to minimize the cost of capital , maximize the return on investment , diversify the funding sources , maintain financial flexibility , and enhance stakeholder confidence. Some common funding criteria are the availability, affordability, reliability, and sustainability of the funding sources, as well as their impact on your financial ratios , credit ratings, tax implications, and governance structure.

2. Identify and assess your funding sources. The next step is to identify and assess the potential sources of funding for your capital plan, and how they match your funding objectives and criteria. There are two main types of funding sources : internal and external. Internal funding sources are the funds that you generate from your own operations, such as retained earnings, depreciation, and asset sales. External funding sources are the funds that you obtain from outside parties, such as debt, equity, grants, donations, and partnerships. Each funding source has its own advantages and disadvantages, and you should consider the pros and cons of each option , as well as their availability and cost in the current and future market conditions .

3. Develop and evaluate your funding scenarios. The third step is to develop and evaluate different funding scenarios for your capital plan, and how they affect your financial performance and risk profile. A funding scenario is a combination of funding sources and amounts that you use to finance your capital plan. You can use various tools and techniques, such as financial modeling , sensitivity analysis, scenario analysis, and stress testing, to create and compare different funding scenarios , and to assess their impact on your cash flow , profitability, liquidity, solvency, and growth. You should also consider the potential risks and uncertainties associated with each funding scenario, such as interest rate fluctuations , currency exchange rate movements, market volatility, credit risk, and operational risk.

4. select and implement your funding strategy. The final step is to select and implement your funding strategy for your capital plan, based on your funding objectives, criteria, and scenarios. You should also communicate your funding strategy to your internal and external stakeholders , such as your board, management, staff, investors, lenders, regulators, customers, suppliers, and partners, and explain the rationale and benefits of your funding decisions. You should also monitor and review your funding strategy regularly, and make adjustments as needed, based on the actual and projected performance of your capital plan, the changes in your funding sources and costs, and the feedback from your stakeholders.

Developing a funding strategy for your capital plan is a complex and dynamic process that requires careful planning, analysis, and execution. By following these steps, you can create a funding strategy that supports your capital plan goals, optimizes your financial resources, and enhances your organizational value.

Developing a Funding Strategy for Your Capital Plan - Capital Planning: How to Develop and Implement Your Capital Plan

Once you have developed your capital plan, the next step is to execute it and monitor its progress. This involves allocating resources, managing risks, tracking performance, and adjusting your plan as needed. Implementing and monitoring your capital plan is a continuous process that requires coordination and communication among all stakeholders. In this section, we will discuss some best practices and tips for executing and monitoring your capital plan effectively.

Some of the key aspects of implementing and monitoring your capital plan are:

1. Resource allocation : You need to allocate your financial, human, and physical resources to the projects and activities that are aligned with your strategic goals and priorities . You also need to ensure that you have enough contingency funds and reserves to deal with unexpected costs or delays. resource allocation should be based on realistic estimates and assumptions, and should be reviewed and updated regularly.

2. Risk management : You need to identify, assess, and mitigate the potential risks that could affect your capital plan. Risks can be internal or external, and can have financial, operational, or reputational impacts. You should have a risk management plan that outlines the roles and responsibilities, the risk assessment methods , the risk response strategies , and the risk reporting and monitoring mechanisms. You should also have a risk register that records the risk events, their likelihood, their impact, and their status.

3. Performance tracking : You need to measure and evaluate the progress and outcomes of your capital plan. You should have a performance measurement framework that defines the key performance indicators (KPIs), the targets, the baselines, and the data sources. You should also have a performance reporting system that collects, analyzes, and communicates the performance data to the relevant stakeholders. You should use the performance data to compare the actual results with the expected results, and to identify the gaps and issues that need to be addressed.

4. Plan adjustment : You need to review and revise your capital plan as necessary to reflect the changing circumstances and conditions. You should have a change management process that defines the criteria, the procedures, and the approvals for making changes to your capital plan. You should also have a feedback mechanism that solicits and incorporates the input and feedback from the stakeholders. You should use the feedback and the performance data to improve your capital plan and to enhance your decision-making .

Implementing and monitoring your capital plan is a critical step in achieving your strategic objectives and delivering value to your organization and your customers. By following these best practices and tips, you can ensure that your capital plan is executed and monitored efficiently and effectively.

Execution and Monitoring - Capital Planning: How to Develop and Implement Your Capital Plan

Evaluating the success of your capital plan is a crucial step in ensuring that your investments are aligned with your strategic goals and delivering the expected outcomes. It is not enough to simply execute your capital plan and hope for the best. You need to monitor and measure the performance of your capital projects and programs, compare them with the original objectives and assumptions, and identify any gaps or issues that need to be addressed. Evaluation can help you learn from your successes and failures , improve your decision-making and planning processes , and communicate your results and impact to your stakeholders . In this section, we will discuss some of the key aspects of evaluating your capital plan, such as:

1. Defining the evaluation criteria and indicators. Before you can evaluate your capital plan, you need to define what success means for your organization and your projects. You need to establish clear and measurable criteria and indicators that can help you assess the progress and performance of your capital plan. These can include financial, operational, technical, environmental, social, and other aspects that are relevant to your context and goals. For example, you might use indicators such as return on investment, net present value, internal rate of return, payback period, cost-benefit ratio , customer satisfaction, quality, safety, environmental impact, and social value. You should also define the sources and methods of data collection and analysis that you will use to measure these indicators.

2. Conducting regular and timely evaluations. Evaluation is not a one-time activity that you do at the end of your capital plan. It is an ongoing process that you should conduct throughout the life cycle of your capital plan, from the planning and design phase to the implementation and operation phase. You should conduct evaluations at different stages and intervals, depending on the nature and scope of your projects and programs. For example, you might conduct a feasibility study at the initiation stage, a mid-term review at the execution stage, and a post-completion evaluation at the closure stage. You should also conduct periodic evaluations to track the performance and impact of your capital plan over time. You should ensure that your evaluations are timely and relevant, and that they provide useful and actionable information for your decision-making and learning .

3. Using different types of evaluation methods and approaches. There is no one-size-fits-all method or approach for evaluating your capital plan. You should use a combination of different methods and approaches that suit your purpose and context. Some of the common methods and approaches that you can use are:

- Quantitative methods. These are methods that use numerical data and statistical analysis to measure and compare the performance and impact of your capital plan. They can help you quantify the costs, benefits, risks, and outcomes of your projects and programs. For example, you can use cost-effectiveness analysis , cost-utility analysis , or cost-benefit analysis to compare the costs and benefits of different alternatives or scenarios for your capital plan.

- Qualitative methods. These are methods that use non-numerical data and descriptive analysis to understand and explain the performance and impact of your capital plan. They can help you capture the perspectives, experiences, opinions, and values of your stakeholders and beneficiaries. For example, you can use interviews, focus groups, surveys, case studies, or stories to collect and analyze qualitative data for your evaluation.

- Mixed methods. These are methods that combine both quantitative and qualitative methods to provide a more comprehensive and balanced view of your capital plan. They can help you triangulate and validate your findings and conclusions from different sources and methods. For example, you can use a mixed-methods evaluation design that integrates both quantitative and qualitative data and analysis for your evaluation.

4. Engaging and communicating with your stakeholders. Evaluation is not a solo activity that you do in isolation. It is a collaborative and participatory activity that involves your stakeholders and beneficiaries. You should engage and communicate with your stakeholders throughout the evaluation process, from the planning and design phase to the reporting and dissemination phase. You should involve your stakeholders in defining the evaluation criteria and indicators, collecting and analyzing the data , interpreting and validating the findings, and developing and implementing the recommendations. You should also communicate your evaluation results and impact to your stakeholders in a clear and transparent manner, using appropriate formats and channels. For example, you can use reports, presentations, dashboards, infographics, or videos to communicate your evaluation results and impact to your stakeholders.

Evaluating your capital plan is not an easy or straightforward task, but it is a valuable and rewarding one. It can help you improve your capital planning and management practices, enhance your organizational performance and accountability, and demonstrate your social and environmental responsibility . By following the steps and tips discussed in this section, you can conduct effective and meaningful evaluations for your capital plan.

Evaluating the Success of Your Capital Plan - Capital Planning: How to Develop and Implement Your Capital Plan

One of the key aspects of capital planning is continuous improvement . This means that you should not treat your capital plan as a static document, but rather as a dynamic and evolving one that reflects the changing needs and priorities of your organization. Continuous improvement involves updating and revising your capital plan on a regular basis, based on the feedback and data you collect from your stakeholders, your projects, and your environment. By doing so, you can ensure that your capital plan is aligned with your strategic goals, responsive to emerging opportunities and challenges , and effective in delivering value and impact.

How can you achieve continuous improvement in your capital plan? Here are some steps you can follow:

1. Establish a review cycle. Decide how often and when you will review your capital plan and update it accordingly. This could be annually, quarterly, monthly, or even more frequently, depending on the size and complexity of your plan and the volatility of your context. You should also define who will be involved in the review process, such as your board, your staff, your funders, your partners, and your beneficiaries.

2. collect and analyze feedback and data . Use various sources and methods to gather feedback and data on your capital plan and its implementation. This could include surveys, interviews, focus groups, observations, audits, reports, dashboards, and benchmarks. You should aim to collect both qualitative and quantitative data, as well as both internal and external perspectives. You should also analyze the data to identify the strengths, weaknesses, opportunities, and threats of your capital plan and its projects.

3. Identify and prioritize changes. Based on the feedback and data you collected, determine what changes you need to make to your capital plan and its projects. These could be minor adjustments, such as revising the budget, timeline, or scope of a project, or major overhauls, such as adding, removing, or replacing a project. You should also prioritize the changes based on their urgency, importance, feasibility, and impact.

4. Implement and communicate changes. Once you have decided on the changes, you should implement them as soon as possible and communicate them to all the relevant stakeholders. You should also document the changes and the rationale behind them, and update your capital plan accordingly. You should also monitor and evaluate the effects of the changes and report on the progress and outcomes of your capital plan and its projects.

5. Learn and improve. Finally, you should use the feedback and data you collected and the changes you made to learn from your experience and improve your capital planning process. You should identify the best practices, lessons learned, and success factors that can help you improve your future capital plans and projects. You should also share your learning and improvement with your stakeholders and seek their input and feedback.

An example of continuous improvement in capital planning is the case of the New York Public Library (NYPL) , which launched a $1 billion capital plan in 2015 to renovate and modernize its branches and facilities. The NYPL has been updating and revising its capital plan every year, based on the feedback and data it collects from its patrons, staff, funders, and partners. The NYPL has also been implementing and communicating the changes to its capital plan and its projects, such as the opening of new branches, the expansion of existing ones, and the enhancement of its digital services. The NYPL has also been learning and improving from its capital planning experience, and has been sharing its best practices and lessons learned with other libraries and organizations.

Updating and Revising Your Capital Plan - Capital Planning: How to Develop and Implement Your Capital Plan

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Nine practices for better capital-investment management

Across industries, senior executives know that managing capital investments wisely means better cash flow, faster growth, and competitive advantage. Many organizations, however, struggle to manage spending on hundreds or even thousands of capital projects and miss substantial growth and profitability opportunities as a result.

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They can unlock this value and improve overall capital-investment performance by mastering nine practices and implementing a comprehensive digital capital-portfolio-management application.

1. Make the capital portfolio a priority

Capital-investment performance can have an enormous impact on an organization’s value, and it can drive growth and increase overall returns on invested capital. The best companies use a clear capital-allocation strategy  to build winning portfolios. They link strategic imperatives to a target capital portfolio, setting and communicating targets for growth and productivity improvements and for sustaining capital expenditures.

For example, when a leading utility generated an integrated view of its capital portfolio, it found that a large share of projects were classified as “regulatory,” skewing the portfolio from its optimal mix. As a result, the portfolio overweighted investments that offered little, if any, cash returns or enhancements of operational stability. With this insight, managers reevaluated the portfolio, project by project, and removed discretionary elements that were bundled into the regulatory requirements. By freeing capital this way, they had more to spend on other cash-generative priorities, such as increasing network reliability.

2. Tap the organization’s collective wisdom

Despite an increasing amount of cross-disciplinary activities, recurring “stay in business” capital projects often still represent an engineer’s solution to a business problem. Hence, the design of these projects often overindex on technical versus commercial attributes. Sourcing project ideas from experts across the business, including engineering, operations, and procurement, however, can bring the best thinking to the surface and help introduce more commercial inputs so that the portfolio is the best it can be for the business, not just technically. Digital tools that manage capex company-wide can facilitate this collaboration, improve transparency, and improve stage-gate reviews. Effective collaboration systems provide colleagues with all the information they need to track project activity, have productive dialogues, and cross-pollinate best practices.

3. Set clear investment objectives and compare even seemingly disparate projects

Most organizations categorize potential investments either qualitatively or quantitatively . Qualitative investments typically include strategic projects or those that address new mandates or regulatory requirements. Most quantitative investments have clear financial goals.

To prevent “pet projects” from moving under the radar, managers should be able to compare and prioritize them on an apples-to-apples basis—even across disparate categories. One chemical company forced a management discussion to compare quantitative facts with qualitative rankings of its portfolio. The conversation led to informed trade-offs on productivity, growth, and maintenance categories, increasing portfolio net present value (NPV) by more than 30 percent.

4. Scrub the business case for each project multiple times throughout the life cycle

Every project proposal should include a detailed rationale, an explanation of alternatives, and a calculation of the expected return or qualitative benefit, timing, context, and risk. Each aspect is likely to evolve as the portfolio takes shape.

A standard model or system for identifying the sources of value  of each project helps reduce uncertainties, eliminate cognitive biases, and build an empirical foundation for portfolio optimization. Across industries, scrub-and-optimization sessions commonly result in 10 to 30 percent reductions in spending for nonmajor projects.

5. Use ROI throughout the investment life cycle

Companies must be able to track return on investment (ROI) across the project life cycle, particularly when planning a portfolio or annual budget and again when reviewing formal approval requests.

While the initial budgeting process should identify the most valuable projects, formal reviews allow managers to reevaluate priorities and understand each project’s rank as it unfolds. Calculating ROI is also critical in postcompletion reviews, to understand how each investment performed against expectations, to improve future results.

Proper ROI analysis can drain resources, since it often requires support from finance. Leading companies adopt standard metrics and calculations, checking them with “scrubbing teams.” The best use tools that calculate ROI automatically throughout the investment process—reducing errors, increasing transparency, and freeing up time for project managers and finance alike.

6. Streamline approvals and make contextually informed decisions

Capital-expenditure approvers must tackle three questions when evaluating requests: Is this proposal complete, and does it exceed minimum hurdle rates? Do we have the funds to invest in this project now? How attractive is this project compared with others?

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Small equals big: Unlocking savings in small to midsize capital-project portfolios in chemicals

They can take time to answer, delaying valuable projects. To invest in the most attractive projects and consistently hit targets, senior managers must assess each proposal quickly and easily given the capital position versus the budget and the alternatives. Decision authority must be streamlined. Many organizations require that too many people or functions be “consulted,” inadvertently giving them pocket-veto power.

7. Forecast more frequently to enable tactical shifts

Many managers build a forecast process in a stand-alone spreadsheet—almost guaranteeing that forecasts are outdated by the time senior management sees them. Shortening this cycle requires several complementary advances:

  • Actual data must flow automatically into the capital-management system so that project managers can easily and frequently update forecasts, and forecast roll-ups must be automatic.
  • Forecasts must be compiled in a systematic and standardized way, and accessible from any device or location, to enable effective collaboration.
  • Management must then act promptly based on these frequent, real-time forecasts—pushing tactical decisions down as far as possible.

As companies utilize digital tools to enable more frequent reporting and forecasting, they should work in parallel to become nimbler and more efficient.

8. Implement a unified cross-platform approach

Most organizations approve and deny projects in silos. Approvals may reside in a custom work-flow application, for example, while actuals live in the enterprise-resource-planning system, and budgeting, forecasting, and ROI in a series of spreadsheets. Managers who must navigate multiple reports and databases may not have an accurate portfolio perspective, diminishing their ability to invest in the most attractive projects.

Companies overcome these limitations by adopting a capital-portfolio-management system that is unified across the investment life cycle, from project inception to postcompletion review. This can benefit other functions. For example, when a global manufacturer deployed a single digital tool for budgeting and project approvals, it gained visibility into capital spending across the organization and enabled the supply-chain team to identify significant savings opportunities.

9. Adopt a culture of continuous improvement

To maximize the value of their capital investment, organizations need to identify past errors and correct course. A clearly defined path to success can help.

If investment objectives are explicit and supported from the top down, managers know what they need to do to succeed—and cultural change can be relatively painless. In one company, leaders adopted a mechanism to flag projects over schedule or budget, instituting a formal review process for every project no matter how small, and tracked ROI by project and budget cycle to allow comparisons.

Using this approach, one oil and gas company steadily reduced capital-expenditure budgets by several percentage points in the years after a step change in performance without falling back to business as usual.

A case example

Companies that follow these best practices can have dramatic results. One petrochemicals player with nearly $1 billion in planned capex per year faced significant challenges: an engineering-centric culture that emphasized technical requirements at almost any cost, often sacrificing a strong link to business logic; an overly complex project-classification system that didn’t allow comparisons; and disparate methods of defining and developing projects, thus preventing a single company-wide view of the entire project portfolio.

After establishing capital as a strategic priority in the face of externally driven pressure on cash flows, the company developed a simplified set of project-classification options, reducing them from 12 to four. It also established a standard project-definition taxonomy with a fit-for-purpose analysis of project economics, which allowed it to construct a “single source of truth” view of the company-wide project portfolio across more than a dozen business units. At the same time, the company also created an independent “capital excellence” team with the express mandate of ensuring each proposed project was founded on a real business need and was cost efficient. In less than 12 months, the company delivered approximately 22 percent savings on in-year capex, with an increase of more than 70 percent in portfolio net present value as projects were improved and reprioritized. To sustain this improvement, the new capital-excellence team sat under the group chief financial officer and was given an ongoing mandate to continuously improve the way projects were developed and approved.

As companies focus on raising revenues and profits, a digitally enabled capital-investment-management system can quickly help to improve financial results and improve decision making so that today’s projects are prioritized and selected with an optimal business target in mind. (For more on the potential of the approach, see sidebar, “A case example.”)

Better capital-expenditure management aligns investments more closely with the organization’s strategy and reduces infighting in the struggle for funding. Furthermore, it allows project managers to make faster, fact-based decisions and gives senior leaders more time to focus on strategic issues.

In our experience, most organizations can institute a far more efficient and effective project-management process in four to six months and see project and portfolio NPV improvements of well over 10 percent within a year.

Matt Banholzer  is a partner in McKinsey’s Chicago office, and Ashish Chandarana  is a partner in the London office.  David Straden  is the founder and chief executive officer of Finario Corp.

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Capital Projects: Capital Planning, Budgeting and Funding

ProjectManager

When governments or corporations make large investments, they don’t do so without serious planning. There’s a lot of money involved in these capital projects and that means getting the funding and allocating the finances wisely.

Let’s take a look at capital projects, explore the idea of a capital asset and delve into the process of capital planning. We’ll end with a few examples of capital projects to make the concept more understandable.

What Is a Capital Project?

A capital project is a significant, long-term, major investment that’s tasked with adding to or improving on an existing capital asset. When speaking of a capital project, one is referring to something big and expensive that’ll involve a great deal of planning and resources to complete.

These capital projects can be infrastructure-based, such as roads and railways, when launched by the government. Corporations also engage in capital projects, but those are more along the lines of developing a manufacturing plant or erecting an office building. They’re initiated to help a company grow.

Because a capital project must be carefully managed, governments and corporations alike will use project management software to control the use of its resources and manage time. ProjectManager is award-winning project management software with powerful Gantt charts that organize tasks, resources and costs. Project managers can link all four types of task dependencies to avoid costly delays, filter for the critical path to identify essential tasks and set a baseline to track project variance in real time. Get started with ProjectManager today for free.

ProjectManager's Gantt chart

What Is a Capital Asset?

Capital projects involve capital assets. But what is a capital asset? A capital asset is any significant piece of property with a useful life longer than a year. It’s not something that a business would want to sell over the course of its normal operations.

You can look at a capital asset as a production cost. If a company buys equipment for its manufacturing plant, then that’s a capital asset. However, if that equipment is bought with the intention of selling it, then that’s considered inventory. Capital assets are used by businesses to generate revenue over an extended period.

While capital assets can be tangible or intangible, in most cases we’re talking about something like a building, land or furniture, fixtures and equipment. A capital asset differs from other assets in that its usefulness is more long-term as opposed to being used in the daily operations of the company.

What Is Capital Planning?

Capital planning is the process of budgeting for resources that will be used in the future to fulfill long-term plans. It’s used to help governments and corporations understand their future operational costs. It involves the assessment and predictive analysis to align the capital project to long-term objectives.

Capital planning is used as a roadmap for maintaining, upgrading and optimizing properties, buildings and infrastructure to name only a few. Once a capital plan has been made, it will be reviewed and approved by operations, stakeholders and finance teams.

What Is Capital Budgeting?

Capital budgeting is a process by which a large-scale investment is analyzed, evaluated and prioritized. Through the process of capital budgeting, one can objectively figure out the best way to apply capital in order to increase business value.

For example, it’ll show the best course of action for a company in making a decision such as whether to build a new factory or acquire an existing one that’s already manufacturing a new product that the company wants to produce. Capital budgeting increases the likelihood of a better outcome for the company.

What Is Capital Funding?

Capital projects are expensive by definition. They’re large and time-consuming, which is why capital funding is so important. Capital funding is simply the act of acquiring money to help pay for the project. While there are many ways to fund a capital project, such as bonds, grants, bank loans, existing cast reserves, operational budgets and private funding, most commonly are these two types of capital funding: debt financing and equity.

  • Debt Funding: This is when money is raised for working capital or capital expenditures by selling debt instruments to the government or corporation, who then become creditors and promise to repay the principal and interest on the debt.
  • Equity Funding: This is a process by which capital is raised by selling shares of a company. Equity can be through friends and family, professional investors or an initial public offering (IPO), though the latter is more involved as it allows the public investors.

Capital Planning Process

When planning for capital projects there are several steps that should be taken. They are as follows.

1. Defining Capital Project Drivers

The first thing to do is figure out what is driving the need for capital investments. That means identifying such factors as an aging infrastructure, regulations that have changed or the objective of growing the business. This will help determine where the capital investment should be made and why.

2. Gather Capital Project Requests

Each project you’re considering should have a capital project request, identifies and describes the project. That means the type of projects it is, where it is, including the legislative district, operating impacts, etc.

3. Prioritize Capital Project Proposals Using Capital Budgeting Techniques

Once you have the capital project requests, review them. Those that meet your evaluation criteria and are considered a good business investment will be separated from the rest. If there’s more than one capital project, then you’ll want to prioritize those projects to help select the right one to move forward on.

4. Establish the Feasibility and Profitability of Project Proposals

Before initiating the capital project, though, one must do their due diligence. This includes a feasibility study to evaluate whether the project will be successful or not. You’ll also want to initiate a cost-benefit analysis to determine if there will be a return on one’s investment, whether in financial or other beneficial gains, such as greater market share, competitive edge, etc.

5. Develop a Capital Plan

Once chosen, you’ll have to create a capital plan to show financial leaders that the investment is going to have a return and show how you’ll execute that plan to deliver it successfully. A proper capital plan will have a budget, timeline and tasks with associated resources and costs.

6. Obtain Approval for Capital Funding

As noted above, the capital plan isn’t only to outline how the project will be delivered but also to gain the confidence of those funding the capital project. Those decision-makers in corporations can include a capital management committee or the board of directors.

7. Execute Capital Projects

Once approved, the work on the project begins. This will involve the use of project management software to control the various elements, such as task management, time management, cost management, resource management, etc.

Capital Project Examples

Before leaving the topic, let’s move from the abstract description of the terms and the process to more concrete examples of what a capital project actually is. We’ve touched on some examples, but here are a few more.

A New Building

Constructing a new building is a capital project. It could be a government wanting to add affordable housing in a city that has little of it. Or a corporation that needs a new headquarters due to its increased size, moving to a new location or simply that the existing building is obsolete or falling apart.

Related: 11 Free Construction Templates

Building a Freeway

This is a governmental capital project, and the reasoning for its construction could be that a route between cities isn’t handling the increase in traffic. The state will have to list the benefits of this construction in order to get funding, such as more travel, tolls or other economic benefits to the state.

Renovating a Building

As noted, capital projects don’t have to be new construction but can involve the retrofitting or repair of an old one. This could be a governmental office or a corporate building, but in either case, there are important repairs, but the work isn’t so substantial that it would require constructing a new building.

How ProjectManager Helps Manage Capital Projects

A capital project is just a project. Yes, a larger, more complex and expensive one, but still only a project. Project management software is designed to make the work related to any project more efficient and effective. ProjectManager is award-winning project management software that has the flexibility to work with any sized project, planning, managing and tracking it in real time.

Plan, Schedule and Track Capital Projects With Multiple Tools

We’ve already shown how our robust Gantt charts can organize tasks, add milestones for tracking and assign team members with work. But not everyone is going to need the features of a Gantt chart, which is why we have multiple project views that all update together in real time. Everyone is always working on the most updated data, whether they’re using the visual workflow of a kanban board , knocking off tasks with our list view or using the sheet or calendar view to track progress.

Track Progress and Costs with Real-Time Dashboards

Planning and managing your team’s work is only part of the job when running a capital project. You need to make sure that the execution is aligned with the plan. Our real-time dashboards give you a high-level overview of the capital project whenever you want one. You can view metrics such as cost, time and more on easy-to-read graphs and charts. Unlike lightweight alternatives, there’s no time-consuming setup with our dashboard. It’s ready when you are.

ProjectManager's dashboard

That’s only a glimpse of what our tool can do for you. Managing a capital project is a risky endeavor, but our risk management features help you identify and mitigate those risks. We also have task management features to keep everyone productive and resource management tools that make sure you have what you want when you want it.

ProjectManager is online project management software that connects teams in the office, out in the field or even at home. It’s easy to share files and comment at the task level to foster greater collaboration. Join teams at Avis, Nestle and Siemens who are using our software to succeed. Get started with ProjectManager today for free.

Click here to browse ProjectManager's free templates

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4 Steps for Successful Capital Planning

Capital planning is one of the most important aspects of managing facilities. It’s also one of the most complex. But by organizing the capital planning process into an appropriate framework, seemingly insurmountable challenges can be overcome. The resulting plan will be impactful, sustainable, and most importantly, actionable.

4 Steps for Successful Capital Planning

Get your free capital planning guide today!  For more details about executing these steps effectively, download our  free guide, “From Assessment to Action: 4 Steps to Creating a Sustainable Capital Plan.”

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6.4 Capital Planning and Investment Control (CPIC)

The Clinger Cohen Act of 1996 requires OMB to establish a budget process of analyzing, tracking, and evaluating the risks and results of IT projects. The law requires federal executive departments and agencies use the CPIC process outlined by OMB Circular A-130. ( OMB Circular A-130. Managing Information as a Strategic Resource. Policy. July 2016 .)

CPIC is a systematic approach to selecting, managing, and evaluating information technology investments. Every year, agencies report IT investments to OMB to inform the President’s Budget. ( USDA. Capital Planning and Investment Control .)

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Capital Planning is the process of budgeting for campus growth and renewal for buildings, infrastructure, and land.

Capital Planning is characterized by uncertain long-term projections, political pressures, resource management and tapping a wide range of expertise that requires both operational and financial experience. Plans must remain flexible as needs and resources change. 

Managing the financing and budgeting lifecycle of capital facilities is one of the biggest challenges faced by large institutions. 

Key factors

The major factors that guide capital planning at UC Merced are:

Addressing enrollment demand

Upgrading faciliites to handle technology advances and the changing nature of academic programs and research. 

Preservation of UC Merced's existing capital assets through investment in the renewal of facilities  and systems modernization.

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Business Planning

True Tamplin, BSc, CEPF®

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on June 08, 2023

Are You Retirement Ready?

Table of contents, what is business planning.

Business planning is a crucial process that involves creating a roadmap for an organization to achieve its long-term objectives. It is the foundation of every successful business and provides a framework for decision-making, resource allocation, and measuring progress towards goals.

Business planning involves identifying the current state of the organization, determining where it wants to go, and developing a strategy to get there.

It includes analyzing the market, identifying target customers, determining a competitive advantage, setting financial goals, and establishing operational plans.

The business plan serves as a reference point for all stakeholders , including investors, employees, and partners, and helps to ensure that everyone is aligned and working towards the same objectives.

Importance of Business Planning

Business planning plays a critical role in the success of any organization, as it helps to establish a clear direction and purpose for the business. It allows the organization to identify its goals and objectives, develop strategies and tactics to achieve them, and establish a framework of necessary resources and operational procedures to ensure success.

Additionally, a well-crafted business plan can serve as a reference point for decision-making, ensuring that all actions taken by the organization are aligned with its long-term objectives.

It can also facilitate communication and collaboration among team members, ensuring that everyone is working towards a common goal.

Furthermore, a business plan is often required when seeking funding or investment from external sources, as it demonstrates the organization's potential for growth and profitability. Overall, business planning is essential for any organization looking to succeed and thrive in a competitive market.

Business Planning Process

Step 1: defining your business purpose and goals.

Begin by clarifying your business's purpose, mission, and long-term goals. These elements should align with the organization's core values and guide every aspect of the planning process.

Step 2: Conducting Market Research and Analysis

Thorough market research and analysis are crucial to understanding the industry landscape, identifying target customers, and gauging the competition. This information will inform your business strategy and help you find your niche in the market.

Step 3: Creating a Business Model and Strategy

Based on the insights from your market research, develop a business model that outlines how your organization will create, deliver, and capture value. This will inform the overall business strategy, including identifying target markets, value propositions, and competitive advantages.

Step 4: Developing a Marketing Plan

A marketing plan details how your organization will promote its products or services to target customers. This includes defining marketing objectives, tactics, channels, budgets, and performance metrics to measure success.

Step 5: Establishing Operational and Financial Plans

The operational plan outlines the day-to-day activities, resources, and processes required to run your business. The financial plan projects revenue, expenses, and cash flow, providing a basis for assessing the organization's financial health and long-term viability.

Step 6: Reviewing and Revising the Business Plan

Regularly review and update your business plan to ensure it remains relevant and reflects the organization's current situation and goals. This iterative process enables proactive adjustments to strategies and tactics in response to changing market conditions and business realities.

Business Planning Process

Components of a Business Plan

Executive summary.

The executive summary provides a high-level overview of your business plan, touching on the company's mission, objectives, strategies, and key financial projections.

It is critical to make this section concise and engaging, as it is often the first section that potential investors or partners will read.

Company Description

The company description offers a detailed overview of your organization, including its history, mission, values, and legal structure. It also outlines the company's goals and objectives and explains how the business addresses a market need or problem.

Products or Services

Describe the products or services your company offers, emphasizing their unique features, benefits, and competitive advantages. Detail the development process, lifecycle, and intellectual property rights, if applicable.

Market Analysis

The market analysis section delves into the industry, target market, and competition. It should demonstrate a thorough understanding of market trends, growth potential, customer demographics, and competitive landscape.

Marketing and Sales Strategy

Outline your organization's approach to promoting and selling its products or services. This includes marketing channels, sales tactics, pricing strategies, and customer relationship management .

Management and Organization

This section provides an overview of your company's management team, including their backgrounds, roles, and responsibilities. It also outlines the organizational structure and any advisory or support services employed by the company.

Operational Plan

The operational plan describes the day-to-day operations of your business, including facilities, equipment, technology, and personnel requirements. It also covers supply chain management, production processes, and quality control measures.

Financial Plan

The financial plan is a crucial component of your business plan, providing a comprehensive view of your organization's financial health and projections.

This section should include income statements , balance sheets , cash flow statements , and break-even analysis for at least three to five years. Be sure to provide clear assumptions and justifications for your projections.

Appendices and Supporting Documents

The appendices and supporting documents section contains any additional materials that support or complement the information provided in the main body of the business plan. This may include resumes of key team members, patents , licenses, contracts, or market research data.

Components of a Business Plan

Benefits of Business Planning

Helps secure funding and investment.

A well-crafted business plan demonstrates to potential investors and lenders that your organization is well-organized, has a clear vision, and is financially viable. It increases your chances of securing the funding needed for growth and expansion.

Provides a Roadmap for Growth and Success

A business plan serves as a roadmap that guides your organization's growth and development. It helps you set realistic goals, identify opportunities, and anticipate challenges, enabling you to make informed decisions and allocate resources effectively.

Enables Effective Decision-Making

Having a comprehensive business plan enables you and your management team to make well-informed decisions, based on a clear understanding of the organization's goals, strategies, and financial situation.

Facilitates Communication and Collaboration

A business plan serves as a communication tool that fosters collaboration and alignment among team members, ensuring that everyone is working towards the same objectives and understands the organization's strategic direction.

Benefits of Business Planning

Business planning should not be a one-time activity; instead, it should be an ongoing process that is continually reviewed and updated to reflect changing market conditions, business realities, and organizational goals.

This dynamic approach to planning ensures that your organization remains agile, responsive, and primed for success.

As the business landscape continues to evolve, organizations must embrace new technologies, methodologies, and tools to stay competitive.

The future of business planning will involve leveraging data-driven insights, artificial intelligence, and predictive analytics to create more accurate and adaptive plans that can quickly respond to a rapidly changing environment.

By staying ahead of the curve, businesses can not only survive but thrive in the coming years.

Business Planning FAQs

What is business planning, and why is it important.

Business planning is the process of setting goals, outlining strategies, and creating a roadmap for your company's future. It's important because it helps you identify opportunities and risks, allocate resources effectively, and stay on track to achieve your goals.

What are the key components of a business plan?

A business plan typically includes an executive summary, company description, market analysis, organization and management structure, product or service line, marketing and sales strategies, and financial projections.

How often should I update my business plan?

It is a good idea to review and update your business plan annually, or whenever there's a significant change in your industry or market conditions.

What are the benefits of business planning?

Effective business planning can help you anticipate challenges, identify opportunities for growth, improve decision-making, secure financing, and stay ahead of competitors.

Do I need a business plan if I am not seeking funding?

Yes, even if you're not seeking funding, a business plan can be a valuable tool for setting goals, developing strategies, and keeping your team aligned and focused on achieving your objectives.

capital planning business definition

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

Related Topics

  • Business Continuity Planning (BCP)
  • Business Exit Strategies
  • Buy-Sell Agreements
  • Capital Planning
  • Change-In-Control Agreements
  • Cross-Purchase Agreements
  • Decision Analysis (DA)
  • Employee Retention and Compensation Planning
  • Endorsement & Sponsorship Management
  • Enterprise Resource Planning (ERP)
  • Entity-Purchase Agreements
  • Family Business Continuity
  • Family Business Governance
  • Family Limited Partnerships (FLPs) and Buy-Sell Agreements
  • Human Resource Planning (HRP)
  • Manufacturing Resource Planning (MRP II)
  • Plan Restatement

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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A business plan is a document that outlines a company's goals and the strategies to achieve them. It's valuable for both startups and established companies. For startups, a well-crafted business plan is crucial for attracting potential lenders and investors. Established businesses use business plans to stay on track and aligned with their growth objectives. This article will explain the key components of an effective business plan and guidance on how to write one.

Key Takeaways

  • A business plan is a document detailing a company's business activities and strategies for achieving its goals.
  • Startup companies use business plans to launch their venture and to attract outside investors.
  • For established companies, a business plan helps keep the executive team focused on short- and long-term objectives.
  • There's no single required format for a business plan, but certain key elements are essential for most companies.

Investopedia / Ryan Oakley

Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.

Even if a company doesn't need additional funding, having a business plan helps it stay focused on its goals. Research from the University of Oregon shows that businesses with a plan are significantly more likely to secure funding than those without one. Moreover, companies with a business plan grow 30% faster than those that don't plan. According to a Harvard Business Review article, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don't.

A business plan should ideally be reviewed and updated periodically to reflect achieved goals or changes in direction. An established business moving in a new direction might even create an entirely new plan.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. It allows for careful consideration of ideas before significant investment, highlights potential obstacles to success, and provides a tool for seeking objective feedback from trusted outsiders. A business plan may also help ensure that a company’s executive team remains aligned on strategic action items and priorities.

While business plans vary widely, even among competitors in the same industry, they often share basic elements detailed below.

A well-crafted business plan is essential for attracting investors and guiding a company's strategic growth. It should address market needs and investor requirements and provide clear financial projections.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, gathering the basic information into a 15- to 25-page document is best. Any additional crucial elements, such as patent applications, can be referenced in the main document and included as appendices.

Common elements in many business plans include:

  • Executive summary : This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
  • Products and services : Describe the products and services the company offers or plans to introduce. Include details on pricing, product lifespan, and unique consumer benefits. Mention production and manufacturing processes, relevant patents , proprietary technology , and research and development (R&D) information.
  • Market analysis : Explain the current state of the industry and the competition. Detail where the company fits in, the types of customers it plans to target, and how it plans to capture market share from competitors.
  • Marketing strategy : Outline the company's plans to attract and retain customers, including anticipated advertising and marketing campaigns. Describe the distribution channels that will be used to deliver products or services to consumers.
  • Financial plans and projections : Established businesses should include financial statements, balance sheets, and other relevant financial information. New businesses should provide financial targets and estimates for the first few years. This section may also include any funding requests.

Investors want to see a clear exit strategy, expected returns, and a timeline for cashing out. It's likely a good idea to provide five-year profitability forecasts and realistic financial estimates.

2 Types of Business Plans

Business plans can vary in format, often categorized into traditional and lean startup plans. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

  • Traditional business plans : These are detailed and lengthy, requiring more effort to create but offering comprehensive information that can be persuasive to potential investors.
  • Lean startup business plans : These are concise, sometimes just one page, and focus on key elements. While they save time, companies should be ready to provide additional details if requested by investors or lenders.

Why Do Business Plans Fail?

A business plan isn't a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections. Markets and the economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All this calls for building flexibility into your plan, so you can pivot to a new course if needed.

How Often Should a Business Plan Be Updated?

How frequently a business plan needs to be revised will depend on its nature. Updating your business plan is crucial due to changes in external factors (market trends, competition, and regulations) and internal developments (like employee growth and new products). While a well-established business might want to review its plan once a year and make changes if necessary, a new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is ideal for quickly explaining a business, especially for new companies that don't have much information yet. Key sections may include a value proposition , major activities and advantages, resources (staff, intellectual property, and capital), partnerships, customer segments, and revenue sources.

A well-crafted business plan is crucial for any company, whether it's a startup looking for investment or an established business wanting to stay on course. It outlines goals and strategies, boosting a company's chances of securing funding and achieving growth.

As your business and the market change, update your business plan regularly. This keeps it relevant and aligned with your current goals and conditions. Think of your business plan as a living document that evolves with your company, not something carved in stone.

University of Oregon Department of Economics. " Evaluation of the Effectiveness of Business Planning Using Palo Alto's Business Plan Pro ." Eason Ding & Tim Hursey.

Bplans. " Do You Need a Business Plan? Scientific Research Says Yes ."

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

Harvard Business Review. " How to Write a Winning Business Plan ."

U.S. Small Business Administration. " Write Your Business Plan ."

SCORE. " When and Why Should You Review Your Business Plan? "

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  1. Capital Planning

    Capital planning is a critical process that businesses undertake to allocate financial resources to long-term investments and projects, such as acquiring new equipment, launching new products, or expanding operations. The primary aim of capital planning is to ensure that a company's investments generate the highest possible return, contribute ...

  2. Capital planning: A beginner's guide to understanding the basics

    Capital planning management basics require understanding various tools, processes and team players before beginning the process.

  3. Capital Planning: The Ultimate Guide

    Capital planning is a crucial process for businesses that want to understand the future operational costs of their building's systems and equipment. This process involves assessment and predictive analysis to align the building's needs with the organization's short and long-term business objectives. With predictive analysis, businesses ...

  4. What Is Capital Planning And How It Can Help Your Business?

    Capital Planning Basics. Capital Planning - The process of budgeting resources for the future of the organization's long-term plans. Not limited to plans already in place, but also on the projection of future projects and their gains and losses.

  5. Capital planning: A beginners guide to understanding the basics

    There are various tools, processes and team players to understand before beginning the capital planning process: Capital request form - The form used to standardize the necessary information for each project so that the planning group can vet the project. Capital project drivers - Every company has different drivers, but the common drivers ...

  6. Capital Planning: Your Most Important Financial Asset

    What Is Capital Planning? Capital planning is the process of outlining an action plan for the allocation and distribution of your company's capital for several years into the future. Other forms of financial planning (such as budgets, forecasts, and cash flow projections) tend to be shorter term, looking at the upcoming financial year or ...

  7. Capital Budgeting: Definition, Methods, and Examples

    Capital budgeting is the process in which a business determines and evaluates potential expenses or investments that are large in nature. These expenditures and investments include projects such ...

  8. Capital Planning: A Comprehensive Guide to Effective Capital Planning

    Capital planning. capital planning is the process of allocating financial resources to achieve long-term strategic goals and objectives. It involves identifying, evaluating, prioritizing, and funding capital projects that support the mission and vision of an organization. Capital projects are typically large-scale, complex, and costly endeavors ...

  9. Definitive guide to capital planning

    Definitive guide to capital planning. This guide provides insights on setting clear strategic goals, managing projects and programs from start to finish, keys to accurate forecasting and analyses, and best ways to collaborate with agencies. The process of successful capital planning is critical to the long-term health of your construction ...

  10. Capital: Definition, How It's Used, Structure, and Types in Business

    Capital refers to financial assets or the financial value of assets, such as funds held in deposit accounts, as well as the tangible machinery and production equipment used in environments such as ...

  11. Capital Project

    Capital Project Definition. A capital project is a capital-intensive, long-term investment initiative. The initiatives involve a calculated risk, with the expectation that the capital investment will pay off. It is unique because it is pricey and necessitates extensive planning when compared to other investments.

  12. Capital Planning: How to Develop and Implement Your Capital Plan

    Capital planning. capital planning is the process of identifying, prioritizing, and financing long-term investments that support the strategic goals of an organization. These investments can include physical assets, such as buildings, equipment, and infrastructure, as well as human capital, such as training, research, and development.

  13. Capital Expenditures

    Learn about capital expenditures, their different types, how to calculate them, how they differ from operating expenses, and some relevant best practices.

  14. What Is Capital in Business? (With Definition and Types)

    Learn about what capital in business is, review a list of different type of capital, explore how it functions and discover how businesses use and manage it.

  15. Nine practices for better capital-investment management

    They can unlock this value and improve overall capital-investment performance by mastering nine practices and implementing a comprehensive digital capital-portfolio-management application.

  16. Capital Projects: Capital Planning, Budgeting and Funding

    Capital planning is the process of budgeting for resources that will be used in the future to fulfill long-term plans. It's used to help governments and corporations understand their future operational costs. It involves the assessment and predictive analysis to align the capital project to long-term objectives.

  17. 4 Steps for Successful Capital Planning

    Capital planning is one of the most important aspects of managing facilities. It's also one of the most complex. But by organizing the capital planning process into an appropriate framework, seemingly insurmountable challenges can be overcome.

  18. Capital Investment: Types, Example, and How It Works

    Capital investment refers to funds invested in a firm or enterprise for the purpose of furthering its business objectives. Capital investment may also refer to a firm's acquisition of capital ...

  19. 6.4 Capital Planning and Investment Control (CPIC)

    6.4 Capital Planning and Investment Control (CPIC) The Clinger Cohen Act of 1996 requires OMB to establish a budget process of analyzing, tracking, and evaluating the risks and results of IT projects. The law requires federal executive departments and agencies use the CPIC process outlined by OMB Circular A-130.

  20. Capital Planning Process

    Capital Planning Process. Capital Planning is the process of budgeting for campus growth and renewal for buildings, infrastructure, and land. Capital Planning is characterized by uncertain long-term projections, political pressures, resource management and tapping a wide range of expertise that requires both operational and financial experience.

  21. Business Planning

    Business planning is a crucial process that involves creating a roadmap for an organization to achieve its long-term objectives. It is the foundation of every successful business and provides a framework for decision-making, resource allocation, and measuring progress towards goals. Business planning involves identifying the current state of ...

  22. Capital Project: Definition, Examples, and How Funding Works

    Capital Project: A capital project is a lengthy investment used to build, add or improve on a project. It is any task that requires the use of significant capital, both financial and labor, to ...

  23. Business Plan: What It Is + How to Write One

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