Written by: Charles Evans

Capital projects are high value, often complex and extremely important to an organization’s profitability.  They are typically large-scale projects, like a new warehouse or plant equipment, and require considerable discussion and review of all possible risks and returns.

The approval process used to decide capital projects is critical in gaining a 360-degree view of the investment. It is often the case that non-integrated or manual approval processes are still being used by organizations which affects more than just speed and accuracy.

This blog takes an investigative look at capital project approval processes and why streamlining it should be a priority.

The Current State of Capital Project Approval Processes

It is common to hear that capital project approval processes are time consuming, frustrating, archaic, and occur outside the core financial ERP.  For such an important process within any organization, it’s probing to think; Why hasn’t more effort been made to, not only digitize, but digitalize and transform the end-to-end process?

The old proverb, “If it ain’t broke, don’t fix it” could be somewhat relevant here. However, that sounds like a short-sighted mentality that could lead to increased risk, reduced profitability and missed opportunities. More likely, the reason a capital project approval process has not received more focus is that operating efficiency gains haven’t been attributed to transforming a seemingly “simple” approval workflow process.

The main reason why a workflow process like capital project approval might seem “simple” and “good enough for now”, is that a holistic view on the overall business process is not always considered.  Workflow processes, even heavily manual ones, simply provide a way to capture data and route it to different people to get consensus and approval. One could question; Why is capturing data in an Excel template such a bad idea?  Or, why would sending attachments via email slow things down or create problems?  It seems simple when you think about those two components in isolation but consider how they impact the entire capital project approval process.

How Approval Workflow Affects Operational Efficiency

There are two core components of a common approval process: Data Entry and Workflow Routing. Deconstructing each of these enables a fresh look at their impact on the overall Capex process which ultimately affects the entire organization.

Inefficient Data Entry Processes

To get a capital project approved, a lot of details are required to give full insight into what the project is, why it’s being done, the risks and benefits, along with supporting financial data that provide approvers confidence to make their decision.  To efficiently capture this necessary information data entry forms should have three key elements:

1. Ease of use
2. Data validation
3. Mandated supporting documents

Unfortunately, it is still common practice for organizations to use Excel spreadsheets, formatted to look like data entry forms, to capture capital project proposals.  This type of data entry process results in frustrations and errors such as:

• Time taken to locate the Excel template in a myriad of corporate data stores
• Confidence the correct form version is being used
• Knowledge and training of how to fill in the form correctly
• Difficulty in completing unintuitive forms
• Inability to validate data
• No controls to ensure support documents are attached

Without the ease of use, data validation and mandated supporting documents, the budget or capital expenditure request process ultimately gets delayed as it gets sent back and forth through the approval process for missing or incorrect details.

Non-Transparent Workflow Routing

Workflow is rarely linear and static.  It needs to be adaptive to the specific scenario it is dealing with and efficiently routed to the correct authorities for their approval.  It also needs to conform to operating policies and regulations within the organization with regards to level of approval and authority domain. When an organization uses manual workflow approvals, challenges start way before the actual routing begins, these include:

• Who are the correct authorities that need to approve the request?
• Are there more approvers needed because the request exceeded a certain threshold, requiring corporate or even board approval?
• Do other executives need to be notified for visibility into capital projects that may affect their departments?
• What defines these authorization rules, and when they change, are staff appropriately notified or re-trained?

Once the capital project approval request is completed, the next step is the actual transmission of the capital request to the next party.  A simple task to perform, yet this is where a capital project can fail as the approval process can slip into the abyss and cause even further delays.  Issues often facing organizations consist of:

• Overwhelming communication channels – Corporate workers have an ever-increasing stream of incoming communications from their colleagues and managers. Instant messaging and collaboration platforms, like Microsoft Teams and Slack, have helped with productivity in some areas but now add more things to monitor over and above the obligatory corporate workhorse, your email inbox.
• Differing Priorities – Emails are sent and ideally read and responded to in a timely manner. Due to our increasingly multi-tasking culture, we often skim over an email reminding ourselves that we’ll get to it after we finish these slightly more important (to me) tasks.
• Lack of Transparency – An approval request in a manual process, can sit with any one of the approvers in the workflow. As a requestor, or even the Capex controller, visibility of its progress is unknown.  Any follow-up requires manual effort and time to ascertain the whereabouts of the request.

Both data entry and workflow routing issues (from finding the template to painstakingly working it through the approval process so you can finally deploy your capital) have a bigger impact than just the speed of the workflow.  They impact the overall Capex process, which ultimately affects the whole business.  The ability to capture, score, rank and gain approval for accurate and validated capex requests affects multiple aspects of any organization.

The Impact of a Manual Capital Project Approval Process

The problems of manual approval processes are far reaching. When aligned with the overall business process the cost of “doing nothing” can come as a shock.

Assets are always depreciating, getting older, becoming less environmentally friendly and ultimately increasing the risk of a catastrophic stoppage or shortage in production, or even worse, a safety hazard costing money, reputation and more.

Innovation and growth are key success factors in today’s competitive dog-eat-dog world. Delaying or even slowing down new initiatives are assumed to cost way more than transforming that “simple” little approval workflow process. Therefore, organizations continue to “do nothing” due to a number of roadblocks:

1. Many functional workflow solutions exist that could improve a manual workflow process, but the core data is in SAP, and so should all the supporting information like the request details alongside the financial justification.
2. Manual re-keying of data from forms into SAP is resource intensive as well as error prone. Results of errors in the keying in of data could mean more time is spent trying to fix the data, which in turn results in halted buying processes causing more unnecessary delays to capital projects and initiatives.
3. Custom integration could be built, but unless the form has real-time SAP validation, there is huge potential for errors. Those errors would involve more labor resources to investigate, rectify and try again.

These roadblocks can be overcome with an integrated and adaptable capital expenditure approval process. While ‘doing nothing’ is preventing the quicker deployment of capital, which normally supports decreasing risk and increasing potential profitability.

How to Successfully Change Manual Capital Project Approval Processes

Digitally transforming manual processes is a key objective for organizations looking to gain a competitive advantage. It has been proven to improve compliance, speed, and quality. We talk more about the benefits of Capex digital transformation in another article. The focus here is to determine a successful path away from manual processes.

Many organizations attempt to solve manual approval processes by using a packaged solution or building a homegrown workflow solution.  Although these approaches can help reduce challenges like email and Excel, they still introduce another data repository into the landscape that must be maintained and paid for.  Often additional expenses are incurred to configure, maintain, and support the solution, as well as the change management associated with users having to access and learn yet another new application.

The ideal solution is something that works alongside, or directly in your core ERP system (SAP).  Organizations make a substantial investment in SAP so leveraging this is a more cost-effective option than provisioning new hardware or cloud hosting, paying for more licenses and training staff.

SAP Fiori is providing users with the ubiquitous user interface for all business process transactions.  Leveraging the extremely intuitive, and soon to be common, SAP Fiori for data entry provides a wealth of benefits such as:

• Consistent access to business applications and approval tasks via the SAP Fiori Launch Pad.
• Real time lookups and validations of SAP data.
• Familiar interaction with all the standard SAP Fiori (UI5) controls through a consistent UI.
• Utilizing your existing SAP infrastructure and staff.
• Can hook into existing SAP configuration for approver determination and substitution rules.
• Rely on existing security configuration.

Leveraging your existing investment in SAP, the hardware, the license fees, the functional, technical and support teams, is a clever move in increasing operational efficiency.  To take efficiency and profitability one step further, combine that with a CAPEX solution for capital expenditure requests that integrates seamlessly into your existing ERP platform which will improve visibility, decrease time to deploy capital projects and reduce potential risk through effective capital project approval.