| SCDigest Says:
|Simple mistakes in just one area can sabotage the credibility of the entire financial analysis. If a single math or spreadsheet error is not caught, for example, it can cause reviewers to consciously or unconsciously look with suspicion at all the other numbers.
Click Here to See Reader Feedback
Many companies struggle to get supply chain and logistics projects approved, or go through multiple cycles, sometimes taking years, before they develop an acceptable ROI analysis and see capital funding allocated to the project.
Sometimes, of course, the problem is simply that the ROI from the project is dubious or not as compelling as other potential company investments. However, many individuals or teams also make mistakes in the cost justification process that hinder their chances of getting even projects with solid financials approved.
The following six guidelines can help maximize the likelihood of getting a specific project approved and funded.
1. Understand Your Company’s Investment Analysis Model: Every company has its own approach to how it looks at the returns from capital project proposals. This partly involves the type of financial calculations used (Internal Rate of Return, Payback Period, Net Present Value, etc.) and also the preferred/required structure of supporting documents and presentations. Be sure to ask what the current standards are (they can change, especially when there has been a change in the CFO position), and ask for example documents for project proposals that were approved, regardless of the area of the company that generated them.
2. Link Funding Requests to Key Corporate Strategies and Objectives: New projects don’t live in a vacuum, and are rarely approved based solely on ROI. If a supply chain or logistics project can be clearly linked to larger company strategies and objectives, so that it has both a financial and strategic fit, it has a much better chance of being approved. Supply chain managers often fail to see that what is important to them or what may seem like a “no brainer” financial investment just isn’t at the top of the executives’ priority list no matter how strong the ROI. You must make the linkage to what’s important to them.
3. Develop a Strong Summary with Detailed Back Up: Requests for funding often get derailed by not getting the level of detail right. Usually, this is caused by putting too much detail in executive presentations. Bored, and unable to distinguish the forests from the trees, executives can’t really focus on the numbers from their vantage, or understand what is truly driving the need for the project. Conversely, sometimes presentations are harmed by not having enough back-up detail, just in case some executive decides he or she would like to understand what is really behind a summary savings calculation. You need both, placed appropriately in documents and presentations.
(Supply Chain Trends and Issues Article - Continued Below)