Turning strategic intent into revenue and return on investment
30 August 2023
Tim Fry, Senior Director, Project Management in the UK shares his insights into how organisations can turn strategic intent into revenue and return by leveraging capital expenditure.
Within business, we often hear the old trading philosophy ‘you have to speculate to accumulate’. In other words, you need to take an active risk and invest in something if you are to make a decent return. I argue against this adage. Yes, investment is integral to growth, but speculation is not. By investing carefully and strategically, organisations can maximise returns, whilst minimising risk.
Recently, we have advised several clients across sectors on making safe investment decisions that increase return on investment (ROI). We then commit to the journey and undertake whole life cycle management to deliver a planned successful outcome.
These are by nature unique projects, but all demand a consistent approach. Below I’ve outlined the key stages and considerations we go through with clients looking to align their business and investment strategies and unlock return on investments in their estates.
1. Focus on ‘why?’
Our entry point for any project is always ‘why?’ Why are you doing this, what benefits are you seeking? These questions seem simple but they’re incredibly effective in helping clients to coalesce their thinking and clarify their goals. The answer might be, ‘to gain a bigger market share with attendant revenue and profit’, or ‘to deliver better care outcomes for our patients’. This core objective can then be developed with the client to derive a strategic brief.
With a strategic brief in place, it is then possible to build a business case. This should encompass the strategic case, economic case, commercial case, financial case, and management case. These dimensions work together to provide a comprehensive analysis of a business problem, creating an effective tool for decision-makers.
A strong business case will demonstrate the required return on capital employed (ROCE) and return on investment (ROI). It will also demonstrate value for money and affordability, and define a spending envelope i.e. the capital budget. It is important that OPEX is costed within this process, as there’s no point in having a nice new shiny building if you can’t afford to run and staff it. Building a robust business case takes time and consideration, but it is paramount to provide clients with the certainty they need to confidently proceed to the next stage.
2. Think big and refine
At this point, we ask clients to think long-term, and consider the implications of their strategic brief far into the future. Take for example an FMCG company looking to grow market share, revenue and profit. We would ask leaders to specify their long-term sales targets and use this information to understand the business need in terms of its estate requirements. If it wants to sell 20% more washing detergent by 2030, its factory may need to be 20% larger.
If the business then secures a parcel of land large enough to house its future production, the next question should be around phasing development. We recently worked with a large food manufacturer to develop a programme of works aligned to revenue growth. This means that as their sales grow, revenue can be gradually invested into the premises, facilitating the next stage of growth. This phased approach prevents the business being put at risk by overextending.
3. Explore options for third party income
Another consideration for clients undertaking phased developments, is whether there are opportunities to generate third party income during the process. One option might be to construct a larger building envelope than required initially. Not only can this help hedge against future price inflation, but the spare space can also be rented out on a fixed term lease in return for rental income.
4. Ensure appropriate separation of powers
When undertaking a large, complex construction project, it can seem like a good idea to go with a ‘one-stop-shop’ provider, able to meet design, project, and cost management requirements, but this is a false economy and can be a barrier to success. We always advise clients to keep the design team separate from the professional team and the constructor. This creates creative tension and the necessary friction for checks and balances to be applied. A collaborative environment allied with robust challenge ensures transparency and that solutions are thoroughly tested.
5. Map the journey
The best working relationships are built on trust – and transparency is key to developing this. Business leaders will only be confident in proposals if they understand them and believe they are fully thought-through. This is why we always build highly detailed proposals, including information on how recommendations will be delivered, when, where and by whom. For one recent client, we developed this into a visual process map, underpinned by logic linked activity scheduling. This was used to communicate plans and progress with the Operations Board and Holding Board. We also produced a cash flow dashboard with cumulative spend, which helped us advocate for drawing down and not locking up cash unnecessarily.
For further information on our approach, or to discuss how we can help your organisation leverage capital expenditure to achieve strategic ambitions, please do get in touch.
Tim Fry
Senior Director, Project Management
+44 7917 689 116