Capital Planning, Resource Allocation
4 3 0 0 W i l s o n B o u l e v a r d , Su i t e 3 5 0
Ar l i n g t o n , Vi r g i n i a 2 2 2 0 3
The Capital Planning Decision Methodology (CPDM)
provides a quantitative and qualitative decision making
process for prioritizing proposed investment initiatives
based on their relative importance towards achieving
organizational goals and objectives. The methodology
involves identifying and prioritizing a set of decision
criteria and sub-criteria, defining rating scales, and then
rating investment proposals against the weighted deci-
sion criteria. The outcome is a measure of the relative
importance of each investment initiative as inputs to
Consolidated Capital Planning and Budgeting decisions.
The CPDM model includes resource optimization and
budgeting to support more informed resource allocation
decisions given a broad variety of budget constraints (e.g.
must-funds, project interdependencies, investment mini-
mums, and multi-year allocations).
This white paper covers Ch a llenges of cap it a l pla nning de c isions
Capital investment decisions are some of the biggest challenges in planning. Multiple
the best-practice approach
stakeholders are involved in the decision, from the users of the capital assets to the
for capital planning, pri- management team, the operations team, maintenance team, construction, engineering
oritization and resource planning, etc. There are competing objectives, such as focusing on elements of sustain-
ability vs. transformation to meet future needs and there may be other considerations
allocation decisions and is
about the environment, safety and security.
vital for anyone involved
Decisions have a significant and lasting impact that can often span years. Long-term
in a capital planning or capital plans are susceptible to continuous changes, so the planning phase has to not
budgeting function. only prioritize the competing objectives but also be flexible to change.
We frequently see organizations that are allowing their metrics to drive capital plan-
ning decisions, rather than using them to support those decisions. For example, one
common metric is a facility condition index (FCI), or "state of good repair," which is
tracked by organizations to assess the state of repair or need of each capital asset
in the portfolio. It is very often used as the single point justification for the capital
investment priorities, but it doesn't represent whether the proposed capital invest-
ments align with or support the strategic needs of the organization.
Also, there is a heavy reliance on spreadsheets to track and manage the portfolio. The
result is a disconnected labyrinth of manual processes that necessitates a slow budget
process. In addition, although spreadsheets are suited for complex calculations by an
individual, they are not appropriate for group-enabled multi-disciplinary engagement.
So where to begin? Developing a successful capital-planning process requires your
organization to link its strategic needs and capital assets in an effective and efficient
manner. Long-range planning and a disciplined decision-making process are required
for managing a portfolio of assets to achieve performance goals and objectives with
minimal risk, lowest life-cycle costs and greatest benefits. It also must promote a
multi-disciplinary engagement process-one that combines the needs and consider-
ations from across the organization.
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The fundamental purpose of a capital How to elicit input from and drive How to identify the key differences
asset portfolio is to plan, acquire and consensus across the capital-planning among the projects in order to make
sustain the needed capital assets to sup- evaluation team? the "best value" decision?
port the organization's strategic goals.
How to focus the discussion for How to know if the project's cost is
Key issues include:
efficiency in the evaluation process, justified by its benefits?
How to define the objectives and make while also elevating the group from the
How to best defend the decision
the tough trade-offs to determine hidden agendas and inherent biases
with senior management and with
the relative value of each capital that others are bringing to the table?
investment project to the strategic
Case study: Military Health System Capital Plan
Decision Lens worked extensively with The right resources--Achieve equilibri- The pr e-D ecision Lens proc e s s
the Military Health System's (MHS) um between requirements and funding Prior to the use of Decision Lens, the
TRICARE medical organization to reform to provide modern, efficient and cost- MHS focused primarily on the condition
its capital planning and capital invest- effective MHS capital assets, facilities of the asset, as measured by the FCI, to
ment process, a long-term multi-billion- and infrastructure. determine which medical facilities to
dollar resource allocation challenge. invest in.
The MHS needed a process to align the
The collective vision of the Tri-Service capital investments with its strategic For example, a hospital in Surrey,
facilities organizations, which brought objectives and to enable a framework for England, had raw sewage bubbling up
together Navy, Army and Air Force medi- the continuous improvement of the MHS in the basement. It ranked very high on
cal needs under one roof, is to ensure capital asset portfolio. It also needed to the FCI because of the poor state of the
that MHS capital assets and facilities establish a process to directly link capi- physical infrastructure and therefore
are available when and where they are tal investments with performance goals was one of the top priorities in the capi-
needed with capabilities necessary articulated in strategic and business tal plan. At the same time, the Ramstein
to effectively and efficiently support planning and enhance joint operations base in Germany was a relatively new
Department of Defense missions. and interagency collaboration. and advanced facility, placing it lower on
T h e g oal s f o r im provement There were a number of factors forcing the capital project priority list.
The MHS Capital Investments Strategic change on the MHS capital plan--the However, the relative priority of the capi-
Plan focused on three major goals: global war on terrorism was a constant tal investments was not helping the MHS
yet evolving challenge. In addition, accomplish its key strategic objectives,
The right capital assets--Locate, size
base realignment and closure, military including the transformation of how
and configure facilities and associ-
transformation, force structure changes, health care is delivered in the military,
ated infrastructure based on readiness
transitions from global theaters to U.S. improvement in customer processes, etc.
requirements and business-case justifi-
installations and a national labor short- Moreover, the goal of the charter of the
cation to support the MHS.
age for certain clinical specialties were MHS and TRICARE is to bring together
The right quality--Acquire, operate, having a direct impact on the MHS. These the various service lines, understand
sustain, restore and modernize capital pressures drove transformation across their needs and combine them into a
assets and facilities and infrastructure the MHS with significant implications for robust solution that would reduce costs
to provide safe, healthful, responsive, the entire capital portfolio. and improve efficiencies.
cost-effective, efficient and flexible
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T h e De c i s i o n L e ns diffe r enc e patients. In contrast, the Ramstein base, and planning process from top to bottom,
The MHS used Decision Lens to evaluate while the most advanced medical care making decisions using a collaborative
the multiple objectives across the service facility, was at the time ramping up to strategic approach with the relative
lines, and a very different set of priori- serve soldiers being flown in from the priority of each of its objectives clearly
ties came to light. war at the rate of 400 per week, putting defined and quantified. It then used
enormous capacity constraints on the those priorities as the evaluation frame-
For example, the hospital in Surrey,
medical facilities at the base. work for deciding which facilities
England, certainly had a severe sewage
provided the "best value" against their
problem, but it was very underutilized Within a few months, the MHS trans-
and out of the way, servicing only 10 formed its capital investments strategy
T h e s t eps t o s ucc essful de c ision m a king
Step 1: Criteria development
The strategic requirements are evaluated and specific criteria are developed. Both quantitative and qualitative factors are
considered together in the decision process. (See Figure 1)
Decision Goal: Prioritize Capital Investments
Improve Customer Centered Processes
Functional Modernization/News Services
Improvement of Existing Services
Compliance with Code and Policy Directives
Improve Productivity/Space Utilization
Figure 1: Hierarchy of criteria
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Step 2: Criteria evaluation and priorities
Figure 2: Development of strategic criteria shown in Decision Lens
Figure 3: Example project alternatives to be evaluated
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