Capture & Prioritize Capital Investments with Alithya’s CPP
When we begin new capital projects, our clients often ask for help answering these questions:
- What capital spending can we afford in the short, medium, and long term?
- Does what we can afford change if we change our investment mix?
- Which investments are self-funding and accretive?
We help our clients answer these questions by using our prescriptive business process: Alithya’s Capital Portfolio Planning (CPP). This prescriptive business process helps capital-intensive organizations manage their capital investment program by collecting investment requests, allocating budgets to capital projects, and streamlining the process to place investments in-service.
Using Alithya’s CPP process you can build a capital request investment portfolio, analyze ROIs, and then choose an optimal set of capital investments by:
- Capturing qualitative & quantitative elements for each potential capital investment.
- Allowing submitters and leaders to prioritize capital requests within their area and the organization.
- Grouping potential capital investments into portfolios to create a multi-year “strategic capital pipeline.”
- Creating what-if strategic investment scenarios to balance funding capacity with capital demand.
Step 1: Implement a standardized capital request proposal template in a centralized cloud system.
In Alithya’s Capital Portfolio Planning accelerator, we use a standardized capital request template to capture qualitative, quantitative, and descriptive information about your potential capital investments. Items like:
- General information such as description & justification
- Qualitative information justifying the investment such as open-ended questions
- Investment cost estimates, including consulting, construction, equipment, and permitting.
- Operational impacts like changes to volumes, headcount, margins, and operating expenses.
- A preliminary funding assessment on how to pay for the investment: from operations, borrowing, equity, grants, fund-raising, or drawing from an endowment.
Figure: Alithya’s CPP’s facilitates capturing all aspects of your capital investments, including qualitative, quantitative, descriptive, funding sources, and ROI.
Step 2: Build a portfolio of capital investment proposals from across the organization covering near, medium, and long-term investment options.
Once we capture your potential capital investments in a consistent way, we can prioritize and rank the different priorities over time. We find the best organizations build a comprehensive portfolio looking across different time horizons for everything from maintaining operations to building new capabilities.
- Short-run – building repairs, equipment replacements, or software upgrades
- Medium-term – layering in each functional area’s roadmaps, such as IT, facilities, and operations, their list of upgrades, renovations, and equipment replacements.
- Longer-term – thinking about strategic investments that further the organization’s mission – like a new campus, product line, or moving into a new market.
I recommend that organizations drive all capital prioritization into their capital programming repository. With every possible investment in one repository, you can perform what-if analysis to find the right balance of needs vs. affordability while slicing across the organization, functions, and entities.
Step 3: Assess and prioritize individual capital investments as well as larger portfolios & programs.
In Alithya’s Capital Portfolio Planning accelerator, once your potential capital investments are entered, you can prioritize individual investments or groupings of investments:
- Review ROI measures like NPV, IRR, and Payback Period
- Group individual requests into Portfolios
- Analyze the cost & operating benefits of different portfolios
Figure: Each manager in your organization can build their capital investment roadmaps in a private sandbox, assessing qualitative and quantitative measures. When it’s time, a manager can submit a capital request into an approval workflow to request funding.
Figure: As you group individual capital requests into portfolios, you can assess the relative cost & benefits of each investment portfolio. The size of the circles represents the investment size compared against the ROI & NPV on the X & Y axes.
Step 4: Look at the big picture of capital needs and how approving different initiatives will impact the organization’s financial health 3-4-5+ years in the future.
Once you have all your potential capital investments in one repository, you certainly can review & rank individual proposals, but more importantly, you can take a big-picture view. You can look at the combined funding-demand looking out 4-5-6-7+ years and how it impacts the organization’s financials in the future.
You can ask “what can we afford?” and “what do our financials look like if we move forward with this set of investments?”
In CPP, we do these analyses by building a “strategic capital pipeline.” A strategic capital pipeline represents the future capital funding needed several years into the future, comprised of approved capital investments coupled with potential ones built up from these individual potential requests and grouped into investment portfolios.
Organizations need to look at their strategic capital pipelines from two perspectives:
- Capacity Limited scenarios take a top-down view of how much the organization can afford based on investing toward strategic goals limited by financial constraints like projected future cash flows, debt capacity, and credit metrics.
- Demand-based scenarios defined by the build-up of the organization’s strategic capital pipeline.
Read our post that goes deep about strategic capital pipelines.
In Alithya’s Capital Portfolio Planning, building a Strategic Capital Pipeline and analyzing your options is just a few steps:
- Group your capital requests into portfolios within Alithya’s Capital Portfolio Planning.
- Determine if you want to include your portfolios in the long-range planning view.
- Pass the Strategic Capital Pipeline to Oracle EPM Cloud Strategic Modeling.
- Perform sensitivity analysis in the Strategic Modeling consolidation view by including & excluding portfolios.
- Determine the organization’s funding capacity using Oracle EPM Cloud Strategic Modeling Integrated P&L, Balance Sheet, and Cash Flow statements
- Model different funding scenarios such as operations, borrowing, equity-raise, fund-raising, grants, or endowment drawdown.
- Decide how the organization should proceed, balancing capital demand with capital funding, ultimately cycling these decisions back into approving specific capital investments
Figure: A real-life strategic capital pipeline comparing the funding required over the next several years, comprised of approved capital investments + potential capital investments tagged for inclusion in the long-range plan.
You did it!
We’ve walked through our embedded lifecycle to take an idea, document capital investment proposals in an online cloud system, prioritize and analyze on an individual basis, and then look at the macro implications on the organization’s long-term financial health.
If you are in a capital intensive organization and looking to optimize your capital programming processes, check out Alithya’s Capital Portfolio Planning learning kit to learn more!
Alithya’s Capital Portfolio Planning links your short, medium, and long-term capital investments in a single repository, allowing prioritization from a request-by-request perspective and a longer term, big-picture perspective.
For comments, questions, or suggestions for future topics, please reach out to us at firstname.lastname@example.org. Visit our blog regularly for new posts about Cloud updates and other Oracle Cloud Services such as Planning and Budgeting, Financial Consolidation, Account Reconciliation, and Enterprise Data Management. Follow Alithya on social media for the latest information about EPM, ERP, HCM, and Analytics solutions to meet your business needs.