7 Secrets To Efficient CapEx Budgeting
Large scale capital projects involve significant amounts of money and capital expenditures can easily get out of control. Mishandled capital projects have the potential to cost your company thousands of dollars. That doesn’t have to be the case, though.
Effective planning and project management are possible, especially if you have the right tools. A capital expenditure management system that includes capital budgeting software is a good place to start. This system will help with tracking budgets and planning for expenses. It’ll also make it easier to implement our seven secrets to efficient CapEx budgeting.
1) Structure Before Starting
One of the quickest ways to let CapEx budgets get out of control is to start the project without adequate preparation. Before beginning any project, you need to identify the project scope, figure out realistic deadlines, and make sure the entire plan is approved.
This is the stage where you should start thinking about the internal resources the project will require. These include finances, materials, manpower, and services. The more detail you have going into a project the more accurate a budget you can generate.
2) Think Long-Term
One choice you need to make in the beginning stages of starting a new CapEx project is whether you’re going to set aside money for purchasing a capital asset or add debt to your balance sheet. Saving money up before making a purchase often means you’ll have to wait to get the needed asset. But borrowing money increases your debt, and there’s a chance that can cause problems for your future borrowing ability.
Either choice can work well for your company, and you might make different choices for different projects. Also, keep in mind that whether you save and purchase later or borrow to purchase now, the money spent on a capital asset is deductible from your tax liability via depreciation over as long as 10 years.
3) Use Good Budgeting Software
Choose a reliable, capable program for managing costs from the very beginning of your project. Something like Excel isn’t practical for large scale capital projects. Even for smaller projects, Excel is still labor intensive, time-consuming, and complicated. And there’s too high a risk of errors slipping in and throwing off your CapEx budget.
NextProcess’ Capital Project Management Software includes capital budgeting tools with configurable levels of budgeting detail. You can customize the system to fit your organization and our team of experts will work with your company to tailor the system to your individual processes.
4) Capture Accurate Data
It’s impossible to manage capital projects efficiently without accurate data. Without reliable information, you can’t create a realistic budget, generate useful reports, or see how well the project is actually progressing. If you want an efficient CapEx budget, you need an accurate look at what you have to work with.
NextProcess’ system easily integrates with your existing ERP to generate accurate reports on all project costs. Our capital expenditure management software delivers granular detail on your capital projects, updates in real-time, and provides complete spend visibility.
5) Get Detail Levels Right
What’s the optimal level of detail for budgets and financial forecasts? The answer depends on who you ask, but you will need to answer this question for your organization to make your CapEx budget as efficient as possible.
Too little detail and the budget will be so vague it’s not useful. But too much detail and you’ll spend so much time gathering information to make your budget that the information is dated by the time you get the budget finished. Finding the right balance is key to efficient capital project management.
6) Create Clear Policies
Managing capital project expenses across a large organization involves many different employees. In some cases, you’ll be working across multiple departments, states, or even countries. To keep the budgets on-track, you need clear policies in place that everyone is expected to follow.
Training, documentation, and easily understood policies are a big help in keeping spend caps in place for all budgets, not just capital projects. But they’re not always enough, especially when you’re managing multiple complex capital projects. That’s where capital expense management software can help with consolidating data and automatically enforcing company policy.
7) Stay On Top of Things
With reliable CapEx software in place, you have the tools you need to start your capital project off right and keep things on track. NextProcess software provides accurate, real-time reporting on capital budgets and CapEx spend. The ability to quickly search for any project, open or closed, and view project details with just a few clicks provides you with complete visibility into the financial side of Capital Project Management.
Automation within the program routes projects and sub-projects for review and approval in the most efficient way. You can also configure different approval requirements based on project type, project total, region, and more. Contact us today to schedule a demonstration and see how our software can make your project management more efficient.