What could you do with $12.2 billion? A developer could construct three One World Trade Centers in New York City, a country could plan and host a World Cup tournament or you could share $1.67 with every living person in the world.
Or, like many companies, you could waste it on office capital projects.
According to JLL research, Forbes 1000 companies miss their capital plan targets for office real estate alone by $12.2 billion. That’s money wasted and a significant cost savings opportunity going unused.
Not all companies are equal offenders: The financial sector is the largest culprit, accounting for one-third of that waste. The best performers manage their capital spend within +/- 2 percent to plan, while the average company misses +/- 12 percent and the worst performers overspend by 20 percent.
So, what can companies do to combat this?
This topic is top of mind for companies looking to rearrange their strategies. The plan needs to be flexible and monitored in real time, as well as aligned with the larger scheme of the business. For instance, if a significant decision is made, like the cancellation of a project, resources need to be properly allocated. However, knowing where to start on these items can be difficult: here are three ways to begin improving the capital spending plan process, ensuring that it runs smoothly and that the sweet spot of +/- 2 percent is reached.
- Take a holistic approach
A capital plan should remain dynamic and take a longer scope of the business, not bound by the bookend dates of the current calendar or financial year. Companies that manage capital planning and project execution as a continuous process stay on point and evolve, as opposed to wasting money when emergencies arise. Building in proactive plans with regular maintenance ensures that when do urgent matters arise, they are capably handled. In addition, working with vendors with knowledge and experience in capital program management brings in that necessary expertise from the start, and helps to ramp up internal capabilities quickly. With their help the accurate data can be used in a carefully controlled building process, making it possible to align that complex information to the broader business plan.
- Find a solid team
The team or unit providing oversight should have deep understanding of the various projects: the real estate, finance, corporate strategy and analytics involved in developing the capital plan. Without that strong background and experience, coordination can fall through and mistakes have the potential to cause issues down the line. There may be a single point of contact to go through, but each person involved needs to support to the project and communicate transparently about the steps involved in creating it. Also, it needs to be noted that all projects and scopes are inherently different – there is no ‘one size fits all’ solution, so the team working on it should be customized to your business’ needs, culture and demands.
- Take advantage of new technology
With the amount of data a company has access to, a system should be put into place that ensures that it is inputted accurately. To do so, leveraging a single technology platform and data set creates a more focused environment. This allows a company to integrate data across the capital project life cycle, which includes construction management, project management and capital planning. To that end, specifically look to invest in tools that can help improve project selection and prioritization. For example, use a selection methodology to remove company politics and inefficiencies from the prioritization process, focusing on objectivity to ensure the correct business strategy.
By implementing the above actions, your company can build a strategic capital planning function that achieves the optimal outcome: growth.