Capital Investment Analysis and Request Form
One of our core duties as stewards of corporate resources is deciding how to deploy our company’s capital. Building and maintaining an asset portfolio and corresponding financing package that aligns with the ongoing mission of the company takes thoughtful preparation and analysis. Developing the standards, processes and tools that support long term, strategic decision making is an important step in achieving this rigor.
Setting standards provides a common understanding across the business to guide investment decisions. Financial return criteria, investment ceilings, hurdle rates, types of activities, geographic boundaries and leverage limits or some standards that help set the boundaries or limit the universe of opportunities the company is willing to consider. Once the operating universe is established opportunities within those boundaries can be processed.
Creating an efficient means to find and then evaluate opportunities governs how many and how quickly projects can be assessed for fit. A growth strategy through acquisition will have different processes in place than one based on organic growth. Erecting the investment process that fits your talent, resource base and strategy will be uniquely yours. However, it won’t happen by osmosis. It requires focus, communication and leadership.
A common tool is essential if speed and comparability are important. The value of setting standards and building processes is watered down if each opportunity is evaluated under a different light. A common tool hastens understanding; enables comparability across projects; while allowing the tool to be sharpened as it becomes more familiar to the team.
Our Capital Investment Analysis Request Form (CIAR) is tool we have found useful over the years for evaluating the merits of capital projects against standards set by corporate leadership. The CIAR is common template that can be easily amended to reflect your capital investment policy. In addition to seamlessly fitting into your specific capital spending policies, it standardizes investment analysis so the same financial hurdles are measured for each project
The Purpose and Form of the Capital Investment Analysis Request
The purpose of the CIAR form is to describe the key attributes of a proposed capital project, including:
- A description of the project, its strategic or tactical objective(s) and critical risk factors
- The capital investment required for the project
- Income or reduced costs due to the investment - (A summary of expected volume, gross margins, other income or cost savings)
- Ongoing operating costs related to the project
- Earnings and cash flow
- If appropriate, the terminal value of the investment
- Financial valuation measures, including: a. Payback in years: Time it takes to recover the cash invested in the project, b. Net Present Value: Expected cash flows discounted at the companies weighted average cost of capital (Includes Terminal Value), c. Internal Rate of Return: Investment return rate is based on the cash flows of years 1-5. (Excludes Terminal Value)
- Agree on the Standards for your long term investment policy (over one year)
- Develop the Processes that will allow you to process new opportunities at a pace that meets the company’s needs
- Learn you to use (or develop) a Capital Investment Analysis Request form and teach others in the organization who will benefit from learning how to use it. See our Case Study for Investment Analysis: Plant Expansion for practice on learning how to use the tool.
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