Collaborative Cap-X process pays benefits: an integrated capital expenditure process allows a company to pool opportunities across business units and to utilize information from multiple stakeholders to realize enhanced benefits and streamline the data collection process.

• Author: Naumoff, Paul
• Position: Capital budgeting

Instituting a managed capital investment process within an organization allows the CFO to drive value, reduce cost and manage risk associated with those investment decisions.

Diligent management of both the expenditures for and indirect taxes associated with capital equipment, and for investments in people (the "Cap-X" process), has become a critical factor in successful investment decisions. That management--coupled with strict monitoring of the process, using a team approach--is emerging as a growing global trend for companies recognized as achieving significant benefits.

Why the increased focus on the Cap-X process? With significant decision factors that cannot be controlled, from energy costs to political instability, a well-managed Cap-X process offers the rare opportunity to use quantitative data to reduce costs and generate savings. That is accomplished, in part, by aligning corporate priorities with the tangible support offered by jurisdictions throughout the world to secure the capital investment and employment that are the foundation for future economic growth.

Thus, economic development and tax incentives are becoming an increasingly important component of the investment decision process of many financial executives.

There are common factors to putting a successful Cap-X process in place: data, common process, stakeholders and a full understanding of the opportunities, and each factor is key to driving the ultimate benefit.

Data. The data gathered to feed a Cap-X process should include projected spending information, focusing on both extraordinary and routine budget estimates, for personal and real property and human capital investment. Many savings opportunities are closely aligned with employment and future job creation, so it is important to understand current headcount by location and possible increases and decreases in employment at each of those locations over a three- to five-year time span.

Consolidations of employment, even those intended to reduce overall headcount, can stimulate a benefit in the jurisdiction affected by the employee movement. Moreover, most businesses today train employees, often continuously, and assistance is available to reduce related costs.

Understanding the tax position in each jurisdiction and any existing inducements already enjoyed by the business also are valuable inputs. Businesses with this key data can enjoy a productive Cap-X process.

The Process. Although each company has unique needs and priorities, Cap-X has worked best as a continuous process that is maintained at scheduled intervals and sustained over time. The process begins with reviewing the data to identify potential opportunities for evaluation.

To qualify the opportunity, an inventory of applicable programs is necessary, including understanding funding levels, key criteria and relevant application and decision timelines. Using this information, a business can prioritize which programs may be most beneficial.

Consider the example of a significant new investment in pollution...