In Today's Complex World, for many organizations the future looks uncertain. Find out more about about how your Capital Improvement Planning can actually help you prepare for uncertain times.
We are excited to discover, with you, the key commonalities and best practices that allow both public and private organizations from capital intensive industries to become stronger at managing their assets over time.
Learn more at: www.durablecapitalindex.com
Ben Parker :
Today we're going to talk about just what makes a capital improvement plan durable in today's ever-changing and complex world.
Welcome to the Durability Podcast. This is for those that are passionate about helping their organizations plan and prepare for the inevitable future.
My name is Ben Parker, management consultant, chemist, creator, entrepreneur, co-founder, and member of the Durable Capital Group.
I'm excited for you to join me as we discover what successful organizations do to build long-term durability. We explore the tactics and strategies that allow great organizations to combine the financial wisdom of asset management, the practical street smarts of the maintenance subculture with the real-world paranoia of managing risk to ensure their organizations last. We uncover what great leaders are doing from all types of capital intensive industries to make decisions, build strong management teams and prepare to meet the future in whatever form it comes.
This is the Durability Podcast.
Hello, and welcome back to the Durability Podcast. Today we're going to talk about just how durable is your capital improvement plan anyway, and what makes a capital improvement plan so necessary and critical in today's complex and ever-changing world.
There's several factors that play into good capital improvement plans. Some companies call them CIPs. Different organizations have different terms, but it really comes down to how well does your organization think about the asset needs, your capital needs for the future, and what are you doing to enhance your organization's ability to build critical infrastructure and have the capital requirements you need and the equipment, the functionality, the capacity, and all the things that you need to maintain your products and services to your customers in the future.
Many organizations have a wide variety of spectrum of how they manage that problem and what job they do for their organization and how well they bring all those pieces together. Some plans are very formal. Some plans are 10, 15, 20, 50, 100 years we've seen. It just depends on the needs of your organization, the specific market that you're in and some of the different underlying beliefs driving your organization.
Many organizations are fairly good about planning, budgeting, and organizing their objectives around a one to two year time frame. Some organizations are very good at that two to five year window. Others are very good up to 10 years, but many are not really thinking past a couple years out and many are not thinking past 10 years. That's fine for a lot of industries in a lot of different businesses, but for specific organizations and specific groups, what we find is that if they have some capital improvement planning mentality, if they have a formal plan, if they have some type of basic structure where they are asking those future-based questions, they can better align their activities that they're working on in the short term, the one to two year period, that can have a substantial impact over the long time.
A lot of organizations will look at capital costs on a budget basis, on a per need basis, on a year time frame. Okay, so what do you need for next year? You put that in the budget and then. You try to get it done. You get about half of it done. And then they come back the next year and say, "Well, you're going to need this this year." And so many organizations have kind of a year cadence to it. And they confuse the capital improvement planning process with the annual budgeting process.
I think a number of advantages can come in when organizations have a structure for capturing those capital projects that are needed long-term that they can put in contingencies. They can look at depreciation. They can build good models or more functional models to really look at some of the key drivers for different projects that they consider and the different things that they invest, their time, their focus, and their capital dollars in.
What makes a good capital improvement plan? I think, obviously it considers the core structure of the needs of the organization. It considers the strategic objectives within the time frame. For many organizations, their time frame is quite long, depending on your type and your structure. Those organizations that have critical infrastructure, that are supplying critical services, that are looking at a variety of different markets or customer based applications that they can support for the long-term are more adept to asking some of these questions.
Some of the core factors are are they looking at the capital needs? Are they looking at the operations and maintenance needs; specific equipment, different time horizons for maintenance activities, for operations activities? Do they have contingency plans? Are they looking at other market forces, depreciation, inflation, those types of things? And do they have very specific project drivers built into their plans?
Many organizations will stop at just the future outlook; what are the capital needs, what are the O&M costs, but they don't take it a step further to really look at some of the other variables and drivers. And really what your capital improvement plan can become is your long-term strategic drivers for your business. It really helps to have that long-term view. And if you can get some core fundamentals in place in that process, successful organizations really do a good job of making sure that they are laying a firm foundation for tomorrow's growth and sustained success that they can leverage, whether that's a product pivot, a market pivot, a variety of things that they have laid the correct infrastructure for, that then provides a framework and a process for them to be more flexible and successful long-term.
As you think about building durability into your organization, think about how durable you are thinking about the future and what your capital improvement plans are really telling you about where you're going and what you're able to achieve in your business.
That's all for now. Have a fantastic day, and we'll see you next time here on the Durability Podcast.
Hey everybody, I just want to share with you something that has been super effective at helping organizations to really kick-start the conversation around how they're going to build a long-term durability into their management practices. If you stop what you're doing right now and go to www.durablecapitalindex.com, that's durablecapitalindex.com, you can sign up to take a very special assessment. This is the Durable Capital Index Assessment. It's a baseline assessment. It'll show you exactly where you're at currently with fundamental best practices for building durability. It will give you a very detailed feedback report that you can take and share with your team. Go to www.durablecapitalindex.com, sign up, take the assessment and share with your team and really start that conversation around building long-term durability into your organization.