Can the Capital Planning Process ever be fixed?

Capital allocation should drive growth. Photo by: Micheile Henderson

Annual planning is one of the most frustrating corporate exercises I go through every year. Hours upon hours are wasted on creating lists, guessing costs and benefits, building complex CBAs, investment stories, and pretty PowerPoint decks. Sometimes teams get a chance to pitch directly to the investment committee, but more often than not, executive leaders look at lists of ideas and numbers and make the call in a leadership vacuum. The outcome usually leaves teams confused, wanting more insight into the why of decisions, and frustrated with the outcome. The best processes, in my experience, leave everyone a bit wanting for more but confident in the direction of the investments.

With the onset of agile project execution in both technology and business projects, coupled with the move towards product level investments vs. project investments, there is a new tug and pull in the dynamic of capital planning. Agile processes anchor in the concept of fixed funding, constraining budget and resources with scope as the lever to pull to achieve value. Agile’s approach is to develop a minimum viable product, delivering the best value for the customer in the fastest possible time. The product owner must be disciplined in prioritizing and facilitate a rapid feedback loop from customers to the agile team. Also, funding an Agile approach requires framing the bigger picture and developing a broader investment thesis that will govern the investment.

Say you are funding a product that will streamline your customer ordering process. You determine you can drive an additional 5% lift in sales while remaining flat in OpEx cost. You specify a $1M investment is required to achieve this goal, and the increase in revenue offsets the investment at a 3:1 rate. As you move through the Agile execution, you determine that you arguably get enough value on a 2:1 ratio, which is a low hurdle to achieve. Measuring the revenue lift and monitoring OpEx costs throughout the project will help determine when enough value is delivered for the investment to be a success.

A product funding model is similar to Agile, except it is tied to the P&L of the product itself and its total contribution to revenue back to the company. It should be rooted in a robust product-market fit road map that articulates how investments will lead to new…