Top 6 Capital Planning Best Practice Tips

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e-Builder.net 800.580.9322 info@e-builder.net | support@e-builder.net CAPITAL PLANNING WP The Top Six Capital Planning Best Practice Tips PLANNING: THE BASIS FOR EFFICIENT, EFFECTIVE CAPITAL PROGRAMS Today's economy demands efficiency. Capital projects must be carefully selected and executed in the most cost-effective manner possible. A well-planned program minimizes the chance of poor decision-making, which promotes program cost reductions, more efficient use of the available manpower, tighter funding controls, and encourages a culture of trust between stakeholders and executives. In the following, we'll define some of the most common complications to creating and maintaining a quality capital plan. We'll also outline a series of industry best practices that will enhance your planning process and help you avoid the most common capital planning pitfalls. SELECT & EXECUTE THE RIGHT PROJECTS Regardless of capital program size, every capital program owner has the same goal: select and execute the right capital projects at the right time and in the most cost-effective manner. Unfortunately, even the most seasoned capital planning managers admit that the typical project selection process is cumbersome and full of risks. Problems, it seems, are more the norm than the exception. The importance of planning couldn't be more vital than during an economic rebound. The already high cost of capital projects can grow exponentially when poor planning results in wasting additional money. An inadequate plan almost guarantees greater costs during program execution. Planning managers must scramble for money when important projects are overlooked or consulting fees are left out of an estimate. Neglecting to schedule these projects at the most opportune time (e.g., because of unknown dependencies), can also increase the expense. Decisions are slowed because of the time involved in collecting actual and projected spending on existing and future projects when managing the process via spreadsheets. Before we outline the best practices that are vital to every effective capital plan, let's look at the two most frequent contributors to an ineffective capital plan—namely, bad data and limited data visibility. HEALTHCARE PROVIDERS FACES CAPITAL PLANNING DISORDER Not long ago, a major healthcare provider found itself in a costly decision-making position because of poor planning. For years, the provider overlooked the annual maintenance/ upgrades to chillers on air handlers at its hospital campuses in favor of more high profile improvements such as a new MRI wing. Unfortunately, the delay in maintenance meant that more than half of the systems required replacement at the same time—at a cost of over $100 million. The price tag for the repair was so high that the provider must now consider shutting down one of its locations, which negatively impacts public relations and reduces future income projections. A prioritized ranking system would have ensured that unglamorous projects weren't overlooked, that projects which didn't align with the needs and objectives of the organization were not included and ensured easier comparison of project request data. Since this experience, the healthcare provider has put in a place a methodical approach to capital planning.

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