As an engineer, I’m always questioning the status quo in search of better ways to do things. It was natural therefore that I started to consider the decision making process that had led to projects I was implementing for FMCG clients.
Could that process be improved, I wondered. Do companies routinely test the robustness of their case so they are fully aware when it becomes unviable? Is there a clear understanding of which factors have the biggest impact on the viability of the investment? Can companies guard against spending time and resources on a course of action only to turn back at a later stage?
Bring in a range of expertise at an early stage
Discussing these questions with clients and colleagues, I saw there was real value to be gained from bringing business, financial and technical expertise together at a strategic level. By involving a range of disciplines at the early stages, companies can make better estimates. They can more accurately forecast economic risks and ensure they are investing in the right location, process and assets.
This has led me to my current role at Royal HaskoningDHV providing business case consultancy to clients. We bring considerable business- and technical project experience to analyse the business case in a process which is tailored to the company’s needs.
My top tips for manufacturers making investment decisions
Based on my experience, I have identified some guiding principles for managers looking to improve the decision making process:
Clearly define the scope of the projectStarting points often move during the course of the decision. Guard against this by clearly defining the scope, function and production parameters of the possible investment. Once you have defined the scope, stick to it. External factors (such as market volumes) will always change, but having a clear vision on the investment will help you increase alignment and speed up the process.
Balance the level of detail needed to make the decisionThere’s a tendency to go into fine detail on capital expenditure costs. Is this necessary? It may have less impact on the business case than projected sales growth or operational costs. If so, define capex within broad parameters and spend time looking at operational cost savings or double checking assumptions rather than pursuing fine detail that doesn’t add to the decision.
Mitigate the external risks with a sensitivity analysisThere will always be risks that are out of your control. Of these, the market risk will be the biggest. However, knowing and testing the robustness of the case and at what stage it becomes unfeasible gives you better insight to manage the risks in your investment.
These are my top three, but since I’m hard-wired to improve on the status quo, here’s a final piece of advice. Incorporate a step in your process to think about where you can make improvements (for example on the process, waste reduction, labour and energy). I’ve never come across a project yet where we did not find a major saving. It’s well worth doing.