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What is Capital Planning?

July 12, 2018 8:50 AM by Tennant Company

Posted in Best Practices

Steps to Successful Decision-Making

Capital planning is the process of budgeting resources for the future growth of the organization. The goal is to place investments into areas of the business that have the best opportunity for producing value. Value can be generated in several different ways, but two common methods are generating top line sales revenue, and investing in equipment or process that reduce costs.

How Does This Relate to My Equipment?

Your mechanized cleaning equipment helps keep your facility in pristine working order. Without your scrubber or sweeper, dirt and grime could begin to build up on your floors and might cause safety and efficiency issues into the future. You depend on these machines, but sooner or later, every piece of equipment will reach a point where you may be putting more maintenance time and money in than you are getting use and efficiency out. This is what is known as the end of the equipment’s “economic life.” Keeping a machine running past its economic life is like throwing money in the trash. Knowing when you’ve reached or surpassed your machine’s economic life can tricky, but it can be an important step to justify a new capital expenditure.

So, How do I Get Started?

There are many variables that come into play during a capital planning project for the purchase of new cleaning equipment. These variables include, but are not limited to: The age of the machine, the cost of maintenance and the cleaning productivity.

Following these three steps will help you get started:

  1. Complete a Project Charter document that outlines the primary objectives and reasons for starting the capital planning project
  2. Assemble a project team of key stakeholders that will help gather information pertaining to the financial justification of your capital purchase
  3. Track repair and downtime costs on aging equipment to help justify the return on the purchase.

It’s important to note that this process may take a few revisions before it is completed. Good communication with your finance team, your project team, and your equipment vendor is the best way to ensure you are putting together a solid capital plan, as well as ensuring you are making your organization aware of opportunities to lower costs and position for future success.

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