Monthly Archives: May 2017

Learn More About Some Practices For Better Capital Investment Management

Executives can improve performance by mastering several practices and adopting a capital-portfolio-management system powered by a comprehensive digital application.

Across industries, senior executives know that managing capital investments wisely means better cash flow, faster growth, and competitive advantage. Many organizations, however, struggle to manage spending on hundreds or even thousands of capital projects and miss substantial growth and profitability opportunities as a result.

1. Make the capital portfolio a priority

Capital-investment performance can have an enormous impact on an organization’s value, and it can drive growth and increase overall returns on invested capital. The best companies use a clear capital-allocation strategy to build winning portfolios. They link strategic imperatives to a target capital portfolio, setting and communicating targets for growth and productivity improvements and for sustaining capital expenditures.

For example, when a leading utility generated an integrated view of its capital portfolio, it found that a large share of projects were classified as “regulatory,” skewing the portfolio from its optimal mix. As a result, the portfolio overweighted investments that offered little, if any, cash returns or enhancements of operational stability. With this insight, managers reevaluated the portfolio, project by project, and removed discretionary elements that were bundled into the regulatory requirements. By freeing capital this way, they had more to spend on other cash-generative priorities, such as increasing network reliability.

2. Tap the organization’s collective wisdom

Despite an increasing amount of cross-disciplinary activities, recurring “stay in business” capital projects often still represent an engineer’s solution to a business problem. Hence, the design of these projects often overindex on technical versus commercial attributes. Sourcing project ideas from experts across the business, including engineering, operations, and procurement, however, can bring the best thinking to the surface and help introduce more commercial inputs so that the portfolio is the best it can be for the business, not just technically. Digital tools that manage capex company-wide can facilitate this collaboration, improve transparency, and improve stage-gate reviews. Effective collaboration systems provide colleagues with all the information they need to track project activity, have productive dialogues, and cross-pollinate best practices.

3. Set clear investment objectives and compare even seemingly disparate projects

Most organizations categorize potential investments either qualitatively or quantitatively. Qualitative investments typically include strategic projects or those that address new mandates or regulatory requirements. Most quantitative investments have clear financial goals.

To prevent “pet projects” from moving under the radar, managers should be able to compare and prioritize them on an apples-to-apples basis—even across disparate categories. One chemical company forced a management discussion to compare quantitative facts with qualitative rankings of its portfolio. The conversation led to informed trade-offs on productivity, growth, and maintenance categories, increasing portfolio net present value (NPV) by more than 30 percent.

4. Scrub the business case for each project multiple times throughout the life cycle

Every project proposal should include a detailed rationale, an explanation of alternatives, and a calculation of the expected return or qualitative benefit, timing, context, and risk. Each aspect is likely to evolve as the portfolio takes shape.

A standard model or system for identifying the sources of value of each project helps reduce uncertainties, eliminate cognitive biases, and build an empirical foundation for portfolio optimization. Across industries, scrub-and-optimization sessions commonly result in 10 to 30 percent reductions in spending for nonmajor projects.

5. Use ROI throughout the investment life cycle

Companies must be able to track return on investment (ROI) across the project life cycle, particularly when planning a portfolio or annual budget and again when reviewing formal approval requests.

While the initial budgeting process should identify the most valuable projects, formal reviews allow managers to reevaluate priorities and understand each project’s rank as it unfolds. Calculating ROI is also critical in postcompletion reviews, to understand how each investment performed against expectations, to improve future results.

Proper ROI analysis can drain resources, since it often requires support from finance. Leading companies adopt standard metrics and calculations, checking them with “scrubbing teams.” The best use tools that calculate ROI automatically throughout the investment process—reducing errors, increasing transparency, and freeing up time for project managers and finance alike.

6. Streamline approvals and make contextually informed decisions

Capital-expenditure approvers must tackle three questions when evaluating requests: Is this proposal complete, and does it exceed minimum hurdle rates? Do we have the funds to invest in this project now? How attractive is this project compared with others?

They can take time to answer, delaying valuable projects. To invest in the most attractive projects and consistently hit targets, senior managers must assess each proposal quickly and easily given the capital position versus the budget and the alternatives. Decision authority must be streamlined. Many organizations require that too many people or functions be “consulted,” inadvertently giving them pocket-veto power.

7. Forecast more frequently to enable tactical shifts

Many managers build a forecast process in a stand-alone spreadsheet—almost guaranteeing that forecasts are outdated by the time senior management sees them. Shortening this cycle requires several complementary advances:

Actual data must flow automatically into the capital-management system so that project managers can easily and frequently update forecasts, and forecast roll-ups must be automatic.
Forecasts must be compiled in a systematic and standardized way, and accessible from any device or location, to enable effective collaboration.
Management must then act promptly based on these frequent, real-time forecasts—pushing tactical decisions down as far as possible.
As companies utilize digital tools to enable more frequent reporting and forecasting, they should work in parallel to become nimbler and more efficient.

8. Implement a unified cross-platform approach

Most organizations approve and deny projects in silos. Approvals may reside in a custom work-flow application, for example, while actuals live in the enterprise-resource-planning system, and budgeting, forecasting, and ROI in a series of spreadsheets. Managers who must navigate multiple reports and databases may not have an accurate portfolio perspective, diminishing their ability to invest in the most attractive projects.

Companies overcome these limitations by adopting a capital-portfolio-management system that is unified across the investment life cycle, from project inception to postcompletion review. This can benefit other functions. For example, when a global manufacturer deployed a single digital tool for budgeting and project approvals, it gained visibility into capital spending across the organization and enabled the supply-chain team to identify significant savings opportunities.

9. Adopt a culture of continuous improvement

To maximize the value of their capital investment, organizations need to identify past errors and correct course. A clearly defined path to success can help.

If investment objectives are explicit and supported from the top down, managers know what they need to do to succeed—and cultural change can be relatively painless. In one company, leaders adopted a mechanism to flag projects over schedule or budget, instituting a formal review process for every project no matter how small, and tracked ROI by project and budget cycle to allow comparisons.

Using this approach, one oil and gas company steadily reduced capital-expenditure budgets by several percentage points in the years after a step change in performance without falling back to business as usual.

A case example

As companies focus on raising revenues and profits, a digitally enabled capital-investment-management system can quickly help to improve financial results and improve decision making so that today’s projects are prioritized and selected with an optimal business target in mind. (For more on the potential of the approach, see sidebar, “A case example.”)

Better capital-expenditure management aligns investments more closely with the organization’s strategy and reduces infighting in the struggle for funding. Furthermore, it allows project managers to make faster, fact-based decisions and gives senior leaders more time to focus on strategic issues.

In our experience, most organizations can institute a far more efficient and effective project-management process in four to six months and see project and portfolio NPV improvements of well over 10 percent within a year.

Starting a Business When You Have a Full Time Job

It’s tempting to want to put 100 percent of your time and effort into plans to launch a new business from Day One. But jumping in with both feet is far riskier than working the business on the side while you hang onto the income and security of your day job.

Start a Business While Working Full Time

Here are five tips from entrepreneurs who have successfully started a business while working full time.

1. Just Get Started

Fear of failure and becoming overwhelmed are two common roadblocks when starting a business. The key is to do something small every day and build on it, says Diane Melville, founder of Skin Care Ox, a skin care blog.

“Even if you’re just figuring out what your domain name is going to be, if that’s all you have time for today, some progress is infinitely better than no progress,” says Melville, who previously worked as a marketing consultant specializing in digital content production.

She also advises budding entrepreneurs to find ways to avoid burnout by having fun during the planning stage, since you’ll likely be working nights and weekends to get your business going.

“I just tried to change my mentality to make it fun,” Melville says. “I would tell myself, ‘This is my baby and I’m going to build this thing.’ Eventually, you get excited and can’t wait to get back to work on it.”

2. Build Expertise and Test the Market

As you get going, build knowledge and skills and develop relationships, says Wilma Nachsin, co-founder of Life Working, LLC, a resume and career coaching business.

Nachsin, a former human resources director, and Arlene Wanetick, her former co-worker and current business partner, learned resume writing, trained as life coaches and signed up clients before they launched the business full time to practice their skills and gather feedback.

Nachsin and Wanetick also sought help to set up key systems, such as software to manage customer relationships and invoicing. They continued to work their jobs for 2½ years before quitting to focus on their business.

“Slowly but surely, we filled our toolbox up with what we thought we needed to build a successful business,” Nachsin says.

3. Avoid Conflicts with Your Job

If your business is in a field unrelated to your job, you may not need to talk to your boss before starting up. If you think there may be a conflict, check with your human resources department to see if you signed a nondisclosure or noncompete agreement, which prevents you from working for a competitor or against the company.

The employee handbook where Nachsin and Wanetick worked barred any two employees from going into business together. But their office director agreed to sign a letter giving them permission to start their business.

“We promised the highest ethics and standards in keeping our business separate from our day jobs,” Nachsin says.

If you need to talk about your new business, restrict those conversations to appropriate times, such as during lunch breaks or outside of work hours, says Pam Farley, founder of Brown Thumb Mama, a home and garden blog.

“I didn’t want [colleagues] to come to a project meeting and think, ‘Oh, good heavens, she’s going to go off on a tangent,’” says Farley, who started her blog while working as a marketing writer for a health insurance company.

Your boss or co-workers may also be able to share expertise that will help your business grow — or even become its first customers, as was the case with Farley.

4. Set Realistic Targets

Achievable goals will help you stay motivated and encouraged, says Linda Pophal, founder of Strategic Communications, LLC, a marketing consulting and content marketing firm.

“I aim for 10 percent to 20 percent more business each year as opposed to 100 percent or 200 percent,” says Pophal, who sets annual sales targets and breaks them down into monthly and weekly goals.

Be sure to keep an eye on profitability by including expenses in your targets as well. For example, Pophal works with freelancers and contractors on certain projects, and now tracks costs versus revenue for each project, aiming to keep at least 25 percent of revenue in profits.

5. Know the Right Time to Leave Your Job

If you’re generating enough income from your business to cover your living expenses and are feeling unfulfilled by your day job, it may be time to give notice.

“For me, it was a combination of having wanted to strike off on my own for a long time, and also not really feeling that challenged,” Pophal says.

When you’re ready to take the leap, look at factors such as whether you have other sources of income, emergency savings and health insurance coverage.