JLL found that some of the world’s best companies:
– Miss capital plan targets for office real estate by $12.2 billion every year, a monstrous-sized figure.
– 72% of that money is underspent, which, if not managed carefully, constricts money from being directed into new growth areas for your company.
JLL found that the world’s best companies manage their capital spend to within +/- 2 percent to plan. These companies have three things in common that have helped them to achieve this level of precision—allowing them to allocate the right capital to the right projects at the right time.
1. A holistic, objective and consistent process
Companies that manage capital planning and project execution as a single, continuous process are best able to stay on plan. A capital plan should remain dynamic and fluid throughout the year and take a longer term view, not bound by the current calendar or financial year. A carefully controlled and purposeful process of building the capital plan ensures alignment to the broader business strategy and provides an audit trail for tracking adherence. In addition, working with vendors that are knowledgeable about capital program management helps to guarantee that companies have the expertise from the start or to ramp up internal capabilities quickly.
2. Centralized oversight
Successful companies define and empower a single point of contact, a centralized group or a program management office (PMO) to drive governance, communication and a transparent process for executives and delivery teams. But it doesn’t stop there: having the right expertise on the oversight team is the single most important factor to building an efficient, effective and actionable capital plan. The team or unit providing oversight should have deep understanding of projects, real estate, finance, corporate strategy, and analytics, as well as the ability to coordinate disparate teams and information. Keep in mind that this is not a one-size-fits-all approach: you need to develop a role or team customized to your business’ needs, culture and demands.
3. Technology (monsters fear it!)
With today’s advancements in data management and technology platforms, there is no excuse not to take advantage of new tools, using them as the foundation of a capital planning program and as a mechanism to monitor progress against plan. Leverage best-in-class data and analytical platforms, or a vendor that already has one, to integrate data across the capital project life cycle, which includes construction management, project management and capital planning. Doing this helps to ensure that teams are working with a single source of truth. Ideally, the common technology will systematically collect and disseminate relevant project data, which facilitates the analysis required to evaluate projects in an objective way, and contains historical information about past projects as a reference. This objectivity helps support projections for future capital needs. 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.
Depending on your organization’s readiness as well as the scale and scope of your capital budget, there are a range of solutions to address and improve these three factors. Solutions to improve performance range from small changes with immediate impact, such as implementing an algorithm to prioritize capital spend effectively, to advanced processes for companies that have mastered their capital monster, but seek to further maximize their capital budget’s productivity. More advanced processes include data integration from other services, business lines and the market.