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Capital Planning refers to the process of figuring out the worthiness of a business project or investment.
It’s typically part of an organization’s financial planning.
It is used to allocate funds towards specific projects, i.e., construction of a new building, expanding an existing facility, or buying new equipment.
Even well-established companies and organizations go through a rigorous process of determining which projects will provide the quickest turnaround.
For the most part, capital planning projects tend to take longer than operational budgets, which require much more decision-making.
So if you’ve ever considered constructing a building but weren’t sure where to begin or how to manage the process, you need to read this article. You’ll be provided with a step-by-step guide in creating a capital budget for your building project.
You can start by making a list of prospective opportunities and then researching them. Talk to your corporate resources such as executives, managers, or even employees to understand their sentiments on the idea of expansion.
Propose the project to people in upper management or even outside parties such as leasing agents, building designers, and construction managers.
In a strata corporation, you must hold regular meetings with the building committee or even talk at the council to get their views on the proposed project.
From there, compile all your research in a document and organize it into different categories that cover every possible component of the project, such as time frame, key players and stakeholders, strategy, cost elements, net benefits, risk and contingencies, and areas of improvement.
Weigh the financial feasibility of the project. This means that your building expansion must meet a certain objective. Every option must be evaluated to determine which one makes the most sense, both financially and logistically.
While it may seem like the next logical step to break down all the line items in your estimate, you must first figure out why you need to construct or expand your building.
The “operational” aspect breaks down how much it’ll cost you to run and maintain the building once completed. This does not include any non-recurring fees associated with legal obligations like title search and attorney’s fees.
The “implementation” aspect answers the question of how much it’ll cost to physically build or expand your building. This also includes all costs related to financing, construction loans, equipment procurement, and legal setup.
Your building expansion could take much longer than expected, which would significantly impact your expected benefits. It’s important to understand what will make your expansion project worthwhile and when the return on your investment will be realized.
In the perspective of a strata corporation planning to expand or improve, the benefits should cover the expenses incurred by the strata corporation and every individual unit owner.
You can also derive value from improving your image, providing more rooms for rental purposes, or even boosting property values with an expansion project.
You may want to expand your business for commercial purposes because it’s maxed out in its current location. If that’s the case, you might not see a return until long after the construction is complete – it could even take years.
On the other hand, if you’re expanding for operational purposes, such as having multiple store locations or simply needing more space, your return on investment will be immediate.
Now is the time to assess your overall risk. Risk, in this case, refers to how likely it is for your business to get hurt financially or how things could go wrong with the project itself.
Think about the people involved in making decisions and carrying out each step of the construction process. Are they dependable? Have they been successful in the past? Also, check if those people are available to commit themselves full-time to your project. Depending on its size and scope, this could take months or years.
For a strata council, think about what or how much the corporation will lose if the project fails. Then, check what lawsuits or legal action could arise and how much that would cost. Finally, evaluate if there are any financial contracts in place to protect your interest should things go south.
Once the risk is calculated, it’s time to create a solid strategy for implementing the building project with as little risk as possible.
It’s best to have a long conversation with the stakeholders. This means analyzing the information you gathered and recognizing all the assets, resources, and constraints involved. It’s a no-brainer that these discussions take time to complete for you to accurately set goals and objectives for each component of the project.
For strata corporations, the discussion should involve all unit owners. Not only can you get feedback, but also you can set realistic expectations and discuss possible complications. Regardless of how much research is conducted while executing your building project, unforeseen obstacles will be too big to deal with alone.
That’s all there is to it – following these steps religiously will ensure that your business, strata corporation, or company doesn’t go off track during an expansion or new construction.
Be reminded that this is a universal guide, which means you must apply the necessary information pertinent to your situation for these steps to work.