Centralize, prioritize, modernize: Three steps to more strategic capital planning

Capital plans are under stress­ and CRE teams are feeling the pressure.

Volatility in policy, pricing and labor availability has forced leaders to constantly reassess what qualifies as a necessary project or expense. Too often, this means delaying or abandoning projects that aren’t critical and urgent.

But staying in survival mode comes at a cost. According to Ali Helland, Director of Capital Planning for JLL, limiting investments to end-of-life asset replacement or deferred maintenance traps organizations in a reactive cycle—chasing funding, shelving growth initiatives and falling behind competitors.

The forces driving capital planning pressure aren’t likely to subside—and may have permanently altered development, according to JLL research. Tariffs, trade patterns, the availability of workers in different regions and delayed starts are all woven together in a volatile mix that demands strategics shift and immediate action from CRE leaders.

The window to respond is open, but it won’t stay that way. Organizations that work now to centralize oversight, standardize data and decision-making, and harness advanced technology will be best positioned to keep their capital projects aligned with business priorities, even as market shifts happen quickly and with uneven impacts.

Lack of clarity and certainty from an economic perspective is cause for more strategic planning, not less. Following are important steps to developing a capital plan that creates and maintains strategic value:

1. Centralize - Empower an oversight team for better information sharing

Organizations generate the most benefit from their capital plan when executives and CRE delivery teams are strategically aligned. A dedicated capital planning team can help coordinate disparate groups, priorities and information across the lifecycle of capital planning.

Identifying the right stakeholders is step one. Look for people or organizational partners with expertise in project vetting, scoping, budgeting and analytics, as well as deep understanding of unique corporate culture and goals. Members should be able to work collaboratively together, and with colleagues and vendors across the organizational ecosystem.

With the right skillset, this centralized team can help you move from reactionary mode to proactive planning forsmarter, more agile capital spending.

2. Prioritize - Develop a consistent process that aggregates and ranks requests from various departments

A strong capital plan is not bound to a single department, facility or even time frame. To truly support the entire organization’s success, you need a standardized, data-driven planning process. That process must set aside personal bias and departmental preferences to balance the needs and opportunities of all business lines in relation to broader business strategy.

Identifying five or six criteria that reflect what’s most important to the organization and ranking each project by their strength and urgency creates a prioritization score that can be shared widely. Everyone across the organization can see the must-do projects, and how they are prioritized, regardless of where the request originated.

This prioritization score helps organizations look past the end of the current fiscal year to drive strategy based on need and projected expenses—and how they will affect financial positioning into the future.

By eliminating arbitrary timeframes, teams can better evaluate not just short-term project or facility needs—they can build a more purposeful and informed strategy that tackles challenges like increasing costs and uncertain labor availability and ramps up mid- and long-term capital funding. This approach further hedges against underspending in the early months of the year and ramping up later, what Helland calls the “hockey stick” approach to spending, with significant projects happening only in the second half of the year.

A comprehensive, integrated planning process will help streamline capital allocation and project execution—improving transparency, driving governance, and ultimately enhancing forecasting and decision-making for better business outcomes.

3. Modernize - Take advantage of technology

A best-in-class technology platform integrate data from engineering, facilities management, transactions management and construction project management functions to help take capital spend strategy from tedious and reactive to nimble and proactive.

The right technology platform enables your project pipeline planning team to draw from a minimally viable amount of data to determine project value. From historical information about past projects, to market trends and forecasting, the right data points help teams evaluate future opportunities, which is more relevant than ever in a rapidly shifting market. You’ll be able to connect disparate data points, fostering transparency and objectivity throughout vetting, allocation and real-time monitoring.

Meanwhile, automated algorithms and customizable dashboards can help speed up budget forecasts, as well inform analysis and strategy.

Too often, organizations work towards a financial deadline to start their capital planning, using unvetted projects and first-pass numbers that may not reflect what’s happening more broadly throughout the organization and the market. The result is usually a hefty amount of unplanned work and unrealistic numbers that continue to get pulled through in future forecasts.

In contrast, integrated technology platforms can become a single source of truth for all parties, with real-world data captured along with a full view of potential projects across the organization, and shared metrics for determining return on investment.

Capital planning can be the antidote to ongoing volatility
 

As volatility and uncertainty become standard, the importance of strategic, agile capital planning will only grow. Centralized governance, standardized decision-making and integrated technology can help organizations transform capital planning from a reactive chore to a strategic advantage. Making the investment in agility now will help these organizations seize opportunities, regardless of how quickly or how often the market shifts.

To help get your strategic capital plan in motion, contact our experts today.