Effective Capital Planning and Operational Improvement

There’s a perception that the core purpose of capital planning is to deploy financial investments into large-scale projects with the expectation that these investments will yield a return. In fairness, this perception has its merits. CFOs, financial officers, politicians and government officials expect the investments they make into facilities and infrastructure to pay off in one way or another, whether it be revenue, foot traffic or curb appeal. But this perception of capital planning shortchanges its real-world outcomes. The creation of an effective, actionable capital plan should also have direct operational benefits for any organization. These benefits are realized much more quickly than large-scale projects are completed.

 

Capital Planning: A Chance to Assess and Prioritize Needs

Capital planning must begin with a needs assessment to assemble, define and prioritize facilities demands. This honest accounting of facilities conditions creates a detailed understanding of where challenges or problems exist that will require investment.

When done effectively, a needs assessment not only uncovers the most critical facilities concerns, it also helps organize facilities into portfolios of need. A state or city government may group its facilities by age; a healthcare facility by function; a higher ed campus by program. No matter the sector, organizational leaders can use portfolios to decide which needs deserve highest priority.

Large-scale capital investments tend to attract the most attention and will naturally move to the top of any project priority list. No surprise there. Big projects that address long-standing needs deliver tremendous value to many stakeholders all at one time; they make the biggest splash. Plus, capital projects can engage donors or other financial contributors and demonstrate organizational commitment to community improvement. But even smaller investments can lead to incremental gains.

Working within a strategic framework is a surefire way to build an effective capital plan. Download our free eBook “From Data to Action: 5 Steps to Creating a Sustainable Capital Plan” to learn more.

Creating Operational Improvements with Capital Planning

To demonstrate how capital planning can lead to operational improvements, let’s consider a single topic: energy efficiency. Anyone who finances or manages a physical asset wants to minimize energy waste (like John Gillette of the Community Colleges of Spokane) and energy efficiency gains are a reasonable expectation of all capital projects. Most importantly, energy efficiency is beneficial for the entire organization.

The initial needs assessment should identify places where even modest capital investments in equipment can create immediate energy savings. Replacing aging HVAC equipment, adding controls technologies and retrofitting or upgrading lighting are all common improvements that can be made faster than large scale capital projects and will yield energy savings that accelerate the investment return. Those savings are only possible with detailed capital planning. With these systems running more efficiently, staff can be routed more effectively.

One sign your capital planning efforts have hit the mark is staff workload. Increases in a facility’s operational efficiency should create decreases in work order activity and unexpected service issues. If your capital planning efforts have resulted in smart investments, significant staff time can be freed up to refocus on planned maintenance projects. Here, the benefits compound. Directing staff attention and effort to ongoing, routine work helps extend the life of equipment and systems that are not yet in need of repair or replacement. The entire facility ends up in better shape now and into the future.

Even the smallest scheduling improvements can have significant impacts. Replacing an aging carpet, for instance, improves the appearance of a space, sure. But replacing the carpet also means the money spent on cleaning supplies and equipment can be spent elsewhere and you recoup the time your staff was wasting trying to make an old carpet look new. Releasing money and time to more productive efforts is always good.

Capital Planning: Reality is Greater than Perception

The view that capital planning is a straight ROI play focused on big projects is incomplete. The truth is, that perception of capital planning doesn’t live up to its full potential. Capital planning should also be a source of smaller project activity that will positively impact operating costs and create efficiencies in both dollars expended and employee time invested.