What is Capital Planning?
Capital Planning allows you to make projections over a period of time. Many progressive organizations are moving from an annual twelve-month planning cycle to a more continuous planning process.
Proper Capital Planning means to be able to understand what your capital spend will be and then the follow-on of that. It is also to be able to track that capital spend over time and re-project on an ongoing basis.
A lot of companies are capital intensive and so what they want is to be able to isolate their capital spend from their operating expense.
Isolate Capital Spend
A lot of companies are capital intensive and so what they want is to be able to isolate their capital spend from their operating expense. The big takeaway here is that capital spend can be amortized over time or capitalized over time depending on if it's software or hardware.
Balance Capital Spend
Companies - depending on their business model - may want to spend more in their capital budget versus their OpEx budget because they're able to split that cost over a three-year period. Capital Spend also has a significant cash outlay.
Understand Capital Spend
If you are a heavy capital-intensive organization, you need to understand what your capital spend. You may need to fund your capital. You may need to go get outside sources of capital to fund your capital spending. If part of a company technology, for example, storage boxes or servers are reaching the end of life, they want to be able to anticipate that and expect that significant upfront spending.
A classic example would be you need to refresh a thousand of servers. You have already spent that money three years ago. The cash is out the door. The next two years you don't have to spend that fifty million dollars. But you need at the end of year three for those servers to expect a fifty million dollar spend. This type of spend could be significant. Using the storage example, if someone is not planning for that year to spend that fifty million dollars.
If the team didn't realize that their servers will be at end of life, that is a fifty-million-dollar gap that they would have in their business. So, for large organizations that have huge capital intensive spend like technology spend or equipment spend, you can underestimate your capital spend. This means you are not be able to fund critical assets for the organization.
What is the solution?
Flag Capital-Related Projects
Inpensa is solving for this by understanding and flagging all initiatives that are capital related. Then it documents the timelines for the assets and has a depreciation model built into the system.
CapEx & OpEx
Inpensa SaaS platform can estimate a couple of things. The tool can build a capital plan, a multi-year capital plan within the system. Inpensa system can look at the expense part of that capital plan. CapEx turns into OpEx by amortizing or depreciating the CapEx.
Monitor refresh cycles
Being able to understand when you will purchase an equipment as a factor of when it needs to go into service. You may purchase mid-year, you may purchase in June and then it goes into service in October because it takes several months to set it up. That in-service date is important because that's when you start to recognize an expense. That in-service date is also important because, at the end of that in-service state, you need to refresh your equipment.
You need the system to tell you leading up to that refresh - maybe six months or nine months away. Inpensa system could alert you that your servers will be the end of life. You need to refresh your servers and based on 5% growth rate over the past three years, we think your service will be fifty-five million dollars as an estimated spend. Being able to have that type of alert and predictive analytics within the system can help mitigate risk. This way you are planning for the spend. You also mitigate the risk of having servers that are at their end of life.