Capital Investment: Stop Planning for Failure—Plan for Success

Numerous organizations face limited capital for investment into buildings and facilities. Real estate managers then face a tough task. How should they maximizing expenditure dollars while ensuring repairs and upgrades are maintained?

Many would develop capital plans to manage how expenditures are deployed. Real estate and facilities management make up a big part of an organization’s operating costs. Thus, a strategic approach to capital deployment is necessary. Capital expenditures, when optimized, can drive significant operating efficiency. More importantly, they reduce long-term business costs and risks.

Yet, many organizations may not take the most strategic approach. Some will allocate resources in an ad hoc function to attempt an equitable distribution of capital. This can result in over-investing in projects that are in the most disrepair or need the most upfront capital. These projects would then need to be re-evaluated the following year.

A more strategic approach is aligning capital around key business objectives and drivers. This is what we at 4tell™ call a capital investment strategy.

Capital planning versus Capital investment strategy

There’s a big difference between a capital plan and a capital investment strategy. Capital plans focus on building and component life cycles as the primary driver of investment decisions. This means you are assuming certain components will fail at specific periods of time. They will eventually require upgrades or replacements. In short, you’re planning for failure. A capital investment strategy is different. Organizations optimize investment dollars by allocating capital around key business drivers and strategic planning processes. They invest in what is needed to accomplish business goals and objectives instead.

For example, imagine a facility required significant upgrades to its systems. Under a traditional capital plan, a budget request would be made to upgrade those components. But, this would add to a long list of other capital expenditure requests for that year. A capital investment strategy would act differently. It could instead identify a five-year plan to consolidate operations across multiple locations. This would negate the need for major upgrades to building infrastructure, instead opting for more short-term maintenance spending.

Building a capital investment strategy

So what do you need to develop a capital investment strategy? It is important for organizations to take the following steps:

  • Take a portfolio-level approach: Most organizations manage large portfolios of buildings and facilities. For them, taking a top-down portfolio approach to capital decisions is critical. Many look at a specific budget request in isolation of its total cost impact or ROI at the portfolio level.
  • Develop a priority model around strategic planning processes: A strategic facilities plan sets long-term facility goals based on an organization’s business objectives. These objectives can vary, but generally outline why you need a building or facility from a business perspective. Develop a strategic plan that highlights how certain assets are helpful to your organization. Then, develop a multi-year (5 to 10-year) timeline for the deployment of capital, based on your business goals and objectives.
  • Support business decisions with data: Most organizations underestimate the power of building component data. The more detailed it is, the better. Accurate condition and performance data helps you understand the benefits of specific expenditures. This is especially when aligned with analytics and the development of operating KPIs and reports.

Capital plans may help justify maintenance expenditures—but you are looking at an asset’s lifecycle (and ultimate failure) as the primary driver of your decision-making. With a Capital investment strategy, you are planning for the success of your business based on your business drivers. You’re investing in line with your business goals and objectives. That’s what it looks like when you stop planning for failure and start planning for success.

4tell Solutions has developed a suite of powerful data capture and forecasting tools. Learn more about our Capital Investment Strategy Module and how it can improve both your asset lifecycle performance and financial results.

Photo credit: Shutterstock, Inc