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As big companies become big spenders again, many question where to use cash

money and a calculator on a table (image)

Capital spending is back. After weathering years of recessionary cost cuts and spending freezes, many businesses have regained enough confidence in their balance sheets to make long overdue investments in facilities, equipment and other gritty but essential assets.

“A lot of companies got caught cash short in the downturn, so they have been reluctant to spend the cash they've been building up,” Jeffrey Saut, Chief Investment Strategist at Raymond James Financial told Reuters last year. “Now they're starting to see a pickup in the economy, and they're starting to loosen the purse strings.”

They’re also aware that they can’t neglect capital investments indefinitely. Capital expenses include corporate spending that improves or extends the life of physical assets like buildings, technology and equipment. Spending on these types of assets increased 15 percent last quarter, to a five-year high of $166 billion, according to an analysis of capital-spending figures from 423 companies by Calcbench.

“Many companies are simply unaware of the inefficiencies in their capital planning process or don’t even know how to start addressing them.”

Jim Dobleske, International Director and Global Board Chair of JLL’s Project and Development Services group

Food giant Campbell Soup Co. expects to increase capital spending by about 15 percent to $400 million this year. Those new resources will go toward maintaining and replacing the company’s manufacturing equipment, cost-saving efforts and production expansions such as adding capacity to its cracker and salad-dressing manufacturing lines.

But now that they’ve got the money to spend, companies like Campbell are wrestling with a new challenge: what to spend it on. While it’s generally accepted that investing in capital needs pays off, it’s not clear at all how those investments benefit organizations, or by how much. That lack of clarity often leads to paralysis.
According to JLL research, Forbes 1,000 companies miss their capital plan targets for office real estate alone by $12.2 billion annually. That’s a 12 percent shortfall on money that should’ve been invested in growth initiatives like hiring talent, improving workspaces, upgrading technology, opening locations and updating equipment.

Jim Dobleske, International Director and Global Board Chair of JLL’s Project and Development Services group, which advises companies on capital-plan management, says many companies are cost-cutting in the wrong areas and should be looking at their project balance sheets for savings.

“Many times, there is a misalignment between the people building capital plans and the people determining business goals, so capital plans don’t reflect the priorities of the business,” Dobleske says. “In addition, many companies are simply unaware of the inefficiencies in their capital planning process or don’t even know how to start addressing them.”

Dobleske recommends three best practices to align capital expenditures with long-term business goals:

  1. Process: Managing capital planning and project execution as a single, continuous process helps keep plans on track. Plans should be fluid throughout the year, and should represent a company’s long-term strategy, not just calendar or fiscal goals.
  2. Oversight: Setting up a single point of contact for large-scale corporate projects, such as a Program Management Office (PMO), can drive governance, communication and transparency for both executives and on-the-ground teams. The PMO should have a deep understanding of projects, corporate strategy and analytics, as well as the ability to coordinate disparate teams and information.
  3. Technology: Using data and analytics platforms ensures all constituents are working from a single source of truth. Using a common technology tool that systematically collects relevant project data can improve project selection and help with project prioritization.