Capital Allocation Selection Hierarchy - CASH™
A system to prioritize Capital Expenditure applications and use your limited capital in the most effective way.
OVERVIEW
The system uses a series of user tailored question sets and topics that relate to particular business plan goals, benefits or risk factors.
The system uses a series of user tailored question sets and topics that relate to particular business plan goals, benefits or risk factors.
- This unique methodology allows you to compare projects on a priority basis using a consistent array of weightings - users cannot change weightings for individual projects. (However, senior management can allow and adjust for equitable distribution of capital across various business units).
- Any business plan contains a number of goals. Some of these are generally considered to be more strategically important than others and the level of this importance may shift due to economic or market circumstances. Whatever the situation, the conservation and deployment of capital should be uppermost in every manager's thinking.
- The system uses a series of question sets and topics that relate to particular business plan goals, benefits or risk factors.
- This unique methodology allows you to compare projects on a priority basis using a consistent array of weightings .
- Questions the applicants about how the project measures up against each topic (business goal, benefit or risk factor) and the responses are scored for the project against each topic.
- Is designed to be easy to use.
- Its primary purpose is to produce a listing of all proposed capital projects in priority sequence for capital planning purposes by business, business unit or corporation. The overall project score is calculated by CASH. Even if there are a number of projects clustered around the same overall score, CASH provides a supplementary graph for additional fine tuning
- Caters to each business unit so that no one business unit would have an unrealistically large proportion of the total available capital because it scored all the good jobs!
CASH Benefits
CASH is expert system that will give you the ability to allow your individual capital applicants and business units to assess their potential capital projects. CASH was developed as a technique to assist in the determination of those projects which best meet business objectives for inclusion in the corporate capital planning process. CASH provides a uniform methodology for evaluating and prioritizing potential capital works projects. CASH assesses business issues often overlooked in a normal criticality and prioritization assessment.
CASH produces the following benefits:
CASH is expert system that will give you the ability to allow your individual capital applicants and business units to assess their potential capital projects. CASH was developed as a technique to assist in the determination of those projects which best meet business objectives for inclusion in the corporate capital planning process. CASH provides a uniform methodology for evaluating and prioritizing potential capital works projects. CASH assesses business issues often overlooked in a normal criticality and prioritization assessment.
CASH produces the following benefits:
- Capital expenditure is prioritized.
- Minimizes waste with better control of cash.
- An objective methodology - Reduces impact of personal preferences and political influences.
- Fast and easy to use - Knowledge of complex statistical analysis and detailed information in project costs is not required.
- Minimizes time taken to assess and re-sort the many potential projects that arise each year.
- Provides single project assessment or multiple project comparisons thus maximizing the use of available capital. Alternately this factor can be used to determine whether a project should proceed to the next stage.
- Provides an audit trail for the decision making process.
- New ideas are assessed at the embryonic stage, prior to expenditure of resources.
- Originators of capital applications can rate the priority of a project prior to its submission thereby limiting and filtering out low priority applicants. They are conversely encouraged to proceed with projects that have a better chance for approval.
- Budget process and approval process is dramatically reduced by lowering the total number of applications for capital and by ranking them in order of importance to see which ones make the "cut". If you had available capital of $10,000,000 and you have 18 applicants for $1 million each, how do you rank them? You instinctively know the 5 most important and probably the 5 least important no matter how "pretty" or persuasive these appear. It is the middle 8 that require and take the most thought. What makes it and what doesn't could result in a expensive outcome for the business.
CASH is the best referee there is !
And it uses the applicant's own data input, so there is very little chance of exclusion
on any other basis than that of the merit (or lack of it) of the submission.
When it comes time to slice up the available pie, make sure that there is no budget brawl. CASH users now complete their budget allocations with a reduction in conflict and waste with increased profits!
CASH METHODOLOGY
CASH uses a unique methodology which assesses projects under topics which can be completely tailored to your requirements in the following example style:
- PRODUCTIVITY DRIVER - COST REDUCTION. For example, the Business Plan calls for a relentless cost improvement to pursue and maintain world class performance to achieve 6% reduction (per year for next 3 years) in controllable costs in real terms.
- ENVIRONMENTAL MANAGEMENT. The requirement to meet 100% compliance with environmental performance standards as defined by the EPA and other relevant environmental legislation.
- OSHA AND OPERATIONAL SAFETY. To achieve a safe working environment, protection of assets and security of project and interconnected system operation.
- STAFF/PEOPLE DEVELOPMENT. To develop highly skilled, progressive and accountable work teams and individuals committed to continuous improvement in your business.
- CUSTOMER ORIENTATION - INTERNAL. To enhance the competitiveness of the business through continuous improvement in internal service excellence and delivery performance.
Let's look at an example - we assume Core Business Focus is Hydro-Electric*
* A typical implementation involves tailoring the ‘statements’ under each topic above, to the conditions appropriate to each organization. i.e.
To concentrate on providing electrical energy, quality of supply
and interconnection and collection/ storage and diversion of water
(or whatever your corporate culture or objectives may be).
and interconnection and collection/ storage and diversion of water
(or whatever your corporate culture or objectives may be).
- CUSTOMER ORIENTATION – EXTERNAL. To ensure delivery of your product/services on demand at the required quality and value.
- TECHNOLOGY—ASSET MANAGEMENT/SYSTEMS. To add value to the business by developing and/or acquiring technologies which optimize operational /cost performance and asset life/capability.
- RISKS -TECHNOLOGY. The risk that the project will not achieve its objectives because of technology related factors.
- EMPLOYEE ISSUES. The risk that the project will not achieve its objectives because of employee related factors.
- RISKS - PROJECT/FINANCIAL ISSUES. The risk that the project will not achieve its objectives because of contractual factors, estimation errors, poor implementation, etc.
- PROFITABILITY - SIZE OF BENEFITS. To maximize long-term net benefits in the interest of the owners and shareholders.
- PROFITABILITY - PAYBACK PERIOD. To promote high return investments.
Under each category, the questions (Y or N? or ranked by a range) seek to establish whether the project meets the criteria of the mission statement and if it does, to what extent.
The questions also explore the measurability of that match.