• Liam Wall

A new iPhone would be very cool!

As Board members with responsibilities for Finance & Risk one questions we are often asked by the organisation is “Can we afford............”. To date the smallest item that we have been asked about (inappropriately so!) was a coffee machine and the largest single item was a £9m specific purpose building.

Often the organisation approaches this in the same way that they would personally and the question could be restated “from our current bank balance or from a ready lender, can we spend £1m on item X”. The question is based around the affordability of the expenditure.

For an organisation the question has to from a different perspective. The question could be better phrased, “with our existing business plan, will committing £1m significantly improve the likelihood of achieving the plan and can we fund the item?”.

Without a business plan in place the evaluation will fail and be relegated to a conversation about the bank balance. With a business plan in place one can evaluate whether this is not only a good investment but also one appropriate in terms of size to the likely outcome. For example, if spending £1m implementing a SAP computer system will improve the organisations speed of response to customers leading to greater sales then the business case is good, unless SAP competitor system will do the same job for £750k.

In other words, spending and investment plans can only be assessed sensibly against the impact on delivering the overall business plan.

As a quick sense check, ask yourself in relation to the last big capital spend what impact did it have on the achievement of the business plan?

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