How to Improve your CapEx Forecasting

A key part of an organization’s budgeting processes are CapEx forecasting. But for many organizations, capital expenditure planning is a time-consuming, imperfect process that doesn’t always provide the value that it should. Planning capital purchases and depreciation is critical throughout the fiscal year, and that starts with accurate budgeting and planning.

It’s easy to blame project underperformance on an uncertain future that affects the costs of complex projects, and contributes to cost overruns, benefit shortfalls, and delays. This is why the need to gain actionable, real-time visibility to make informed capital investment decisions is critical. But, despite this need, many businesses find that their processes can be tedious and cumbersome. This is often due to data inaccuracies as a result of a lack of consideration to capital purchases and their expenses, lengthy approval process, a lack of formal plans and poor workflow.

A 2015 survey by Deloitte found that 89% of respondents changed their performance management process or planned to change it within 18 months. Forward-thinking companies have done a good job at rolling forecasts because they have adopted a system that automates their processes.

Take Company ABC, for example. In Q1, ABC mostly conducted estimates for the forecast. As a result of implementing a performance management solution that automatically fed actual project payments, in Q2 Company ABC brought in the actuals, such as invoices and POs that they receive from suppliers. The forecasting process become more accurate in Q3 as a result of an automated system that facilitated detailed project forecasting and enterprise wide financial forecasts.

What enables this process?

When you create and tie capital expenditure to projects from start to finish, and prioritize and set approval statuses for CapEx, the forecasting process becomes easier. When you define approval chains from end-users to final approvals, and map capital purchases, you gain visibility into financial reports.

The right CapEx management solution provides templates that enable teams and project managers to input capital purchases based on their specific needs, and get an automatic calculation of depreciation for review by finance teams.

Improving your CapEx forecasting will ensure that key ROI metrics will be available during your annual budgeting process in order to make better allocation decisions. You will also have the ability to analyze budgeted spend and report on actual performance. The importance of CapEx planning in your company is vast. If your current CapEx planning doesn’t compliment your budget and forecasting, you need to improve it in order to stay on top of your processes and ensure the approval of your capital projects.

Forecasting software is a key aspect of the budgeting and planning cycle. It provides an environment in which teams can collaborate and view future expenditures when managing finances. When you have the ability to standardize processes in the company, you can have a more accurate representation of your organization’s future.

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