The corporate capital plan: set at the beginning of the year, reflective of and aligned with business objectives, and delivered roughly on target – right? Not so fast. Upcoming research conducted by JLL on the accuracy of capital plan execution vs. target in large corporates worldwide has shown that companies frequently fall short in establishing and adhering to their capital plan. JLL has found that on average, the Forbes Global 1000 companies miss their capital plan targets for office real estate alone by +/- 12% to plan every year.  This indicates that many of today’s sophisticated companies are unintentionally inhibiting growth because they do not effectively develop, manage and execute their capital plan – the ‘capital monster’.

Of course, exceeding a capital plan is harmful to an organisation in many ways – not just financially.  But our research tells us that many companies actually underspend their capital plans. Rather than being worthy of a big company-wide pat on the back, underspending the annual capital allocation means that funds are diverted from more productive uses.   This makes a difference in an increasingly competitive environment where every investment dollar is critical.

So why do companies frequently miss the mark? We see a few different reasons, related to both the plan itself and its execution:

• The plan is established based on inaccurate, or incomplete data that provides an insufficient basis for decision making, forecasting, and prioritisation
• Lack of transparency on the progress against plan due to different or incompatible technology tools for monitoring
• Projects prioritised based on company politics or relationships rather than true need
• Lack of flexibility built into the plan: when business strategies change mid-year – as they often do – the plan cannot accommodate the reallocation of resources
• Organisational misalignment – those who make the plan are not the same as those who deliver it.
• Reactive vs. proactive management

Experience tells us that the best practice companies have tamed their capital monster and manage their capital plan to within +/- 2% of target.   These companies do four things very well:

• Build an accurate and strategic capital plan from the start
• Establish a function to manage the process holistically from planning to execution
• Leverage a single technology platform and data set to ensure transparency and a single source of information
• Ensure that the right skills are in place to drive the plan

To learn more about the capital monster and how to master it, stay tuned for the upcoming research insight from JLL, Tame the Capital Monster.

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