Written by Trevor St. Germain CTO, Axia Software
Curtail Wasteful Asset Investment Budget
With numerous multiyear projects in play and mounting pressures to align asset investment decisions with corporate goals, asset intensive industries often lack the visibility to make informed re-investment decisions after projects are initially funded. While a portion of contingency funds built into Asset Investment Planning (AIP) budgets is wisely utilized to support approved projects, there is frequently a significant portion across all approved projects that is either unspent or poorly utilized. During fiscal period reviews, functional departments must decide whether to reallocate unspent budgeted funds or relinquish them.
Project managers within electrical power utilities and oil/gas energy companies, two of the most asset intensive industries, often resort to “throttling” their budgets. The objective of this manipulative effort is to impede or “choke” off unspent funds from being surrendered by reallocating them toward projects that have yet to be fully vetted, often due to lack of visibility.
By some estimates, impetuous budget throttling squanders about 7% of annual cap/ex funds on low/no-yield projects. Such squandering can be substantially curtailed by executing the following two measures:
1. Change business rules when functional departments are reluctant to relinquish unspent funds. The preferable change is to pool surplus and available contingent funds so they can be directed at high value projects that narrowly missed winning funding at the onset of the fiscal period.
2. Change how key data sets are analyzed and used to ensure wise use of unspent funds. Improve rapid correlation of and visibility to key data so that decision makers can objectively reallocate funds to high-yield projects, especially those that support quantifiable corporate goals while comprehending the long term need of human and material resources.
While executing the first measure is fairly straightforward, the second one requires the sifting through largely unstructured (and un-related) data sets – most of which already exist in asset intensive organizations — to optimize asset investment decisions. Fortunately, this data manipulation task including the rapid correlation of multivariable options can be streamlined with new software tools that have come to market. Such tools are proving to be an ideal antidote to wasteful throttling.
Besides neutralizing subjective, emotional arguments during re-prioritization periods, fully featured software tools can also quickly establish a baseline for ensuing budgeting cycles. Moreover, they can rapidly identify the lowest cost options for maximum risk mitigation as they simultaneously help formulate AIP budgets that are defensible, transparent, repeatable and auditable.
Happy Asset Investment Planning!