Your spreadsheet may seem your best friend but is it really? Sure, building spreadsheets is a must for non-repetitive financial analysis. But where analysis is repetitive, robust financial models can better save your time. And, in business, time is money.
Up against sophisticated software with all the multi-faceted value adding tools and checks and balances you need already built in, in-house financial models fall sadly short. What’s more they take time and effort to build. But surely, the real question to ask is: Is your capex financial model as good as it needs to be ?
As consultants we have reviewed supposedly “robust” in-house capex spreadsheet models used by many different organisations over the years. Our observations are:
- They often contain errors, and are seldom independently audited
- They seldom integrate effective risk analysis tools such as Monte Carlo risk simulations
- They rarely integrate and automate sensitivity analysis
- They seldom integrate project priortity setting tools and software applications
- They are seldom proactive in promoting the integrity of proposals by displaying prompts and warnings
- The seldom account for all depreciation and tax implications
- They seldom provide help tools and animations
- They seldom enable true ‘what if’ analysis
- They seldom provide a capital management infrastructure
- They rarely enable multiple applications – such as buy verses lease; business acquisition and divestment analysis;
optimizing asset replacement cycles; depreciation forecasting, etc
- They seldom provide the tools to help users to add economic value because they are rarely
developed by capital expenditure specialists
- They rarely provide software functionality
- They rarely integrate with Workflow and capex collaboration applications including sharing
information for continuous improvement
- They rarely integrate objective priority setting tools
- The effort expended could instead be directed at exploring better alternatives
Capital investment evaluations are amongst the most crucial decisions most companies make and they all have long term impact. We therefore question why some accountants spend considerable time building their own capex appraisal tools when substantially more powerful ones can be sourced for a mere fraction of the cost ? It’s a bit like reinventing the wheel, and this endeavor is not an organisation’s core business to undertake.
Any in-house time investment on model-building certainly has an opportunity cost. This cost could be though of as being the value that in-house financial analysts could have instead added by assisting management team members to explore the many value adding opportunities that must exist to grow shareholder value.
In short purchasing the Capex® Stratagio™ will save money and frees up time you can instead commit to weighing up capex options knowing they have survived the most robust analysis possible.