Nine practices for better capital-investment management  

18 May 2017:

Across industries, senior executives know that managing capital investments wisely means better cash flow, faster growth, and competitive advantage. Many organizations, however, struggle to manage spending on hundreds or even thousands of capital projects and miss substantial growth and profitability opportunities as a result.

They can unlock this value and improve overall capital-investment performance by mastering nine practices and implementing a comprehensive digital capital-portfolio-management application.

1. Make the capital portfolio a priority


Capital-investment performance can have an enormous impact on an organization’s value, and it can drive growth and increase overall returns on invested capital. The best companies use a clear capital-allocation strategy to build winning portfolios. They link strategic imperatives to a target capital portfolio, setting and communicating targets for growth and productivity improvements and for sustaining capital expenditures.

For example, when a leading utility generated an integrated view of its capital portfolio, it found that a large share of projects were classified as “regulatory,” skewing the portfolio from its optimal mix. As a result, the portfolio overweighted investments that offered little, if any, cash returns or enhancements of operational stability. With this insight, managers reevaluated the portfolio, project by project, and removed discretionary elements that were bundled into the regulatory requirements. By freeing capital this way, they had more to spend on other cash-generative priorities, such as increasing network reliability.

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Source: McKinsey

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