The case for better business case infrastructure

September 2013

 

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TONY STREET discusses why it is important for education providers to have the right capex (capital expenditure) systems in place.

In the wake of the Solid Energy and Novopay debacles, it is unsurprising that many tertiary education institutes and school boards of trustees are now seeking to upgrade their business case and capital management infrastructures.

US software development firm Geneca’s study of 600 business and IT executives showed that 75 per cent of them expected their software projects to fail before they had even started. Upon the study’s release, Geneca chief executive Joel Basgall said, “There is no question that the overall survey results show that our single biggest performance improvement opportunity is to have a more business-centric approach to requirements. The research reminds us that problems usually lurk below the surface right from the start.”

The ‘start’ is not the beginning of the project itself but its point of conception and can be traced back to how the business case is approached. Business case processes form an important sub-set of an organisation’s capital management infrastructure. As Gary Miller from University of Auckland’s Department of Engineering said, “business cases should explore whether the right project is being proposed in the first place”.

The key aims of business cases are to promote informed decision-making, innovative thinking, better value, and benefit trajectory monitoring. Business cases require project risks to be analysed. They provide the vital link between an organisation’s strategic plans and its operating budgets, because they require quantification of benefits. They form an important sub-set of an organisation’s capital management infrastructure – which amongst other objectives will identify the cost of capital and communicate return on capital objectives.

With few exceptions, the administrators of New Zealand tertiary education institutions have for many years operated with a capex (capital expenditure) infrastructure consisting of policies, procedures, templates, delegated approval levels, and the like. However, few to date have fully leveraged low-risk IT initiatives to best manage their limited capital resources.

In relation to the economic business case, many in the education sector still apply ad hoc spread-sheeting habits, which are time-wasting, inconsistent, and error prone. For example, common errors made to the delight of leasing companies when appraising lease options include applying year-end discount factors and flawed cost of capital assumptions.

On the other hand, proprietary capex software applications not only automate the analysis but proactively guard against shortcomings. Such applications can ask intelligent questions and launch warnings. They also integrate a suite of risk assessment tools, so that risk simulations and related analysis happens at a single click.

Particularly within tertiary institutes, there is a formal process for capex and major maintenance budgeting, with long ‘wish lists’ of proposals formulated. A vast number of paper-based expenditure proposals must be processed, through a hierarchy of management layers – a very time-consuming process.

The opportunity exists to automate this process using integrated, paperless workflow systems that facilitate multiple work-flows. This enables team members to truly collaborate online; to view approval status in real-time and for ‘capex history’ to be stored to provide insights through cross comparison. Reporting functions are automated and fully integrated, and data pertaining to approved capex is exported to supporting project management systems. Project value trajectory is also automated.

In terms of capex priority setting, some education providers are still using manual systems that allow subjective judgement. For example, replacement of a science lab’s equipment could be justified on “OSH grounds” using a crude framework. Appreciating the importance of OSH spending, an improved, integrated IT solution would ‘tease out’ the justification issues by requiring team members to score the proposal on such drivers as risk exposure, consequences and risk reduction using graphical user interface (GUI) screens. Scores are electronically assigned to key risk drivers by clicking and dragging the GUI, and are then graphed by the system and saved to an integrated database, promoting transparency and consistency. Similar GUI tools can be used to assign priorities from many other perspectives such as NZQA compliance and technological efficiency.

Using IT to empower team members to make better capex decisions is the next opportunity. More robust decision support applications such as planning entire expenditure programmes; optimising the replacement cycle of fixed assets; determining whether to maintain or replace; developing a business case to recruit an additional team member, and so on should be available to decision makers.

To its credit, NZ Treasury has published a series of guidelines for preparing Better Business Cases (BBC) based on a 5 step process. This framework is especially useful for IT proposals and campus developments because the business case addresses strategic, economic, commercial, financial and management considerations.

Proprietary software applications are now available to complement BBC in terms of preparing business cases across a vast array of smaller scale projects. The obvious benefit of using software systems is that appraisals can be prepared very swiftly. A key aim is to maximise tertiary sector education delivery from limited resources.

Tony Street is a consultant with Capex Systems Ltd.


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