Keys to Capital Planning in Uncertain Times

We’re all seeing how an unpredictable economic environment creates multiple challenges for asset-intensive organizations, leading to a “Survive – Sustain – Predict” mindset. With this kind of focus, cutting costs is an obvious first response, but the danger is that response could leave companies well behind the curve for the next upward growth phase.

This got us thinking about alternative strategies and the wider issues around asset lifecycle management. In particular, we’re focusing on the critical role of strategic planning/portfolio management plays in not only controlling costs and improving efficiencies, but also ensuring the appropriate prioritization of projects that will deliver longer-term strategic value.

Selecting the right projects

Research by global advisors has underscored the impact that inadequate strategic planning/portfolio management processes can have on organizations, including allowing evaluation of a new investment without a proper assessment of risks and returns. Compound that with the complexity of overlaying all the currently approved projects (both CapEx and OpEx), and it becomes ever more challenging to make effective decisions on what to cut, what to keep, and what to delay.

An immediate focus on cutting CapEx and OpEx to shore up balance sheets can negatively impact long-term growth as projects aligned with a greater enterprise strategy are eliminated. Decisions made solely on the basis of cost neglect many other important factors that are not visible to the planning team, and they can and should be included in any model when looking to make tough decisions.

Improving the odds of success

The optimal outcome of portfolio management planning is a set of investments with a clear line of sight to enterprise strategy. To that end, planning stakeholders should evaluate projects based on a pre-determined set of drivers–from generating positive cash flow and acceptable ROI, to ensuring regulatory compliance and shareholder value.

The ability to reset and re-evaluate these drivers means they can model different scenarios, accurately assess risk, and make faster, data-based, and objective decisions. To achieve this flexibility and reduce uncertainty, many of the companies we work with have turned to technology to take the gamble out of the strategic planning processes.

Managing the entire asset lifecycle

This kind of strategic planning/portfolio management plays a crucial role in portfolio performance and controlling costs in these difficult times. That ability to bring all the data together quickly, and from across many business lines—already a challenge—is even more difficult when your teams are working remotely. It is critical to pursue a true loop between assets, the business, and project delivery organizations.

Tactically, what can be done now to manage the impact of slowdowns on the capital plan?

1.    Bring people, information, and processes together

•    Ensure data silos and offline recordkeeping are minimized
•    Allow stakeholders to update project criteria on their schedules, not just in meetings
•    Provide faster decision data

2.    Tune your portfolio management methodology to fit your business and vernacular

•    Associate projects with attributes (strategies, subsidiaries, divisions, regions, etc.)
•    Align scoring and prioritization models with investment value to the enterprise
•    Establish and maintain annual and planning-horizon targets and variances
•    Streamline scoring by simplifying and minimizing stakeholder inputs

3.    Use visualizations to drive conversations

•    Don’t expect auto-pilot; encourage dialogue based upon your scoring outputs
•    Use creative visualization methods to “train the eyes” of your stakeholders
•    Consider including resource demand and capacity in analyses
•    It’s not one size fits all—allow for different views for different audiences at different levels

4.    Create scenarios to achieve new targets as capital availability and priorities change

•    Increases or decreases in annual, five-year, and/or strategy bucket cash flows
•    Don’t wait to create contingency plans—scenarios enable agile response to change
•    Quantify the cost-benefit impact of project delays and cancellations

Given the challenges of the current economic environment, we think it’s more important than ever that portfolio management is informed by a longer view of strategic needs and powered by the right inputs (i.e., all critical stakeholders) at the right time. Making data-driven decisions today can be the difference-maker tomorrow.

Geoff Roberts, director, energy industry strategy for Oracle Construction and Engineering, co-wrote this article.

Oracle Construction and Engineering, the global leader in construction management software and project portfolio management solutions, helps you connect your teams, processes, and data across the project and asset lifecycle. Drive efficiency and control in project delivery with proven solutions for project controls, construction scheduling, portfolio management, BIM/CDE, construction payment management, and more.

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