The state of capital budget planning: a new study reveals how companies are managing their processes and dealing with the challenges and risks, as well as identifying ways to streamline and automate the process.

• Author: Carlson, Maureen
• Position: Budgeting - Report

Anew survey of senior financial executives reveals that significant capital planning and investment decisions are made utilizing manual approaches and non-integrated spreadsheets with limited analytics and post-delivery measurement capabilities.

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Of the 128 executives who responded to the survey, 50 percent reported an inability to track affordability and return on investment (ROI) as their top risk, followed closely by the inability to maximize market opportunity, resources and budget and concerns over making the wrong long-range investments (see Exhibit 1 on page 50).

In the current economic environment companies are engaged in an ongoing planning process versus a one-time annual activity, due to the dynamic business climate and regular priority change. In fact, 60 percent of participants indicated their planning process is ongoing or quarterly.

Capital planning complexity is exacerbated by the fact that most companies have several finance and cross-business unit participants who all utilize manual, non-integrated spreadsheets for the planning process. Very few participants reported use of sophisticated software or tools for their planning efforts but many had clear challenges in using today's tools and indicated and interest in planning for automation and process refinement in the next 12 months.

What is clear from the 2011 Capital Planning Study--conducted by Appleseed Partners and Financial Executives Research Foundation (FERF)--is that millions of dollars of strategic decision-making is taking place with insufficient tools to provide for proper scenario analysis and investment analytics across the company. Therein lies the risk in making prudent, data-driven investment decisions.

The objective of the survey was to understand how executives currently manage the long-range capital and investment planning process in large, complex companies. Details on the participants and methodology used are noted in Exhibit 2: Top Risks to Capital Planning Quality, on page 50.

Executives Reveal Pain Points: 'It's Too Manual'

Forty-eight percent of participants indicated that the manual nature of planning and complexity was one of the top three pain points, followed by impact of business climate change and lack of visibility into performance. In a separate question, 45 percent of participants said that the ability to analyze and measure investments post-delivery is poor to very poor.

How manual is the...