[Blog Article | Reading Time: 3 mins] The fourth part of our blog series recommends an intrayear forecast in CapEx planning and shows how much controlling employees benefit from it. They have a big problem: A reliable statement about the actual investment volume can only be made very late in the year. However, they would like to do this much earlier.
CapEx planning plans, controls and coordinates all investment activities and thus assumes a mission-critical task. Although investments made – or not made – have a considerable influence on the success of a company, the forecast of planned investment projects is still neglected in many cases. Either no forecast is made at all, so that controlling employees have to wait until the last minute to see whether planned budgets are still retrieved. Or there is an occasional harmonization throughout the year, which only provide a preliminary result.
Precise and up-to-date forecast
What kind of forecast do controlling departments profit most from? Basically, a forecast in CapEx planning indicates which planned, and budgeted investments will actually be retrieved in the course of the year. It can be used to react to any postponements of investments into the next year and the controlling department can provide information on the current status at any time. A dream for everyone who is responsible for CapEx planning.
The most precise multi-year or medium-term planning of future investments is useless if the budgeted investments are postponed or not retrieved for other reasons. As a result, the planned budget ultimately does not correspond to reality and takes the punch out of the planning.
Result without significance
Many companies have not established a process for a forecast throughout the year. They argue that such a query is carried out automatically by comparing the planned investments with the realized and actual investments. This is a correct thought. The problem: A meaningful result can only be determined in the last quarter or even in the last month of the year. At an earlier stage, a comparison between planned and realized activities does not provide reliable information, because budgets that have not yet been retrieved could still be retrieved.
However, many project managers and budget applicants have known for some time that their investments will be postponed. This happens, for example, due to changed project plans or delivery problems that will not be known until the end of the year. However, the important information about a postponement does not reach those responsible, although they should know about it as early as possible.
In CapEx planning, a company plans a certain amount of money for acquisitions in subsequent years. If this sum is reduced, this not only has commercial disadvantages (keyword: taxes), but also means that the postponed investments are (must be) made in the following year. However, CapEx planning has already been completed for the following year in which the postponed investments are not taken into account.
Knowing that an already approved investment will be postponed until the following year gives those responsible the chance to react and essentially opens up two possibilities. Either they use the released budget in the current year for another investment – for example, an acquisition that was originally only approved for the next year – or they cancel the released budget from the current year and shift it to the next year.
Both options provide valuable commercial flexibility. However, both do not exist if it is determined only in December – or even later – that an investment is postponed. It is not possible to realize or bring forward another purchase in such a short time. In addition, the CapEx planning for next year has already been completed so that the money can no longer be budgeted for it.
The tasks of CapEx planning do not end when the investment budget for the coming year is fixed. They also include the important area of the forecast throughout the year. From a commercial point of view, the budget retrieval query brings great value. How often the forecast is done on a rolling basis or at fixed times in the year, is up to each company to decide.