How to Overcome The Difficulties of Capital Budgeting

Capital Projects are one of the most visible and important functions that our local and state governments own. From road improvements to new libraries, and stormwater management to parking garages, both residents and elected officials alike take pride in and closely watch the impact of the projects on their communities. Meanwhile, governments are tasked with carefully managing the funding and expenses for these projects, like leveraging Federal or State Aid or issuing Bonds, all while making sure debt stays within mandated limits and accounting for any ongoing Operating Budget Impacts that could affect the Government’s General Fund for years to come. Much is at stake here. The wrong decision can result in lower bond ratings, thus paying higher interest rates, or having a project go sideways, which could cost elected officials the trust they have built with their residents.

With all this pressure, Capital Budget planning and management, commonly referred to as a Capital Improvements Plan (CIP), is still primarily managed by our Governments through a technologically outdated combination of Excel Spreadsheets, Word Documents and PDFs. These tools can be successfully utilized to aid in a successful capital project, but they lack many capabilities like collaboration, unbreakable formulas, and version control that allow for a more efficient and effective project. Adding to this challenge is the fact that there are many stakeholders functioning in a multitude of roles responsible for managing these projects, including engineers, project managers, fiscal policy specialists and budget analysts. These people typically have to plan the project funding and expenditures over a multi-year period, while also tracking progress across the different phases (also referred to as cost elements) of a project’s lifecycle, such as planning, design and construction.

Without having a central platform to manage capital projects, versioning gets out of control, aggregation of the entire CIP for a macro-level view becomes tedious and time consuming, and seeing a clear picture of where funding can be moved to handle project slippage and acceleration is arduous. In addition to budget and financial tracking, there is also a need to capture and record a lot of descriptive information about a project, including status, description, justification, location, responsible department, start/end date, and much more. With this in mind, it is easy to see how difficult it is for Governments to stitch together all of the information that makes up a single Capital Project, let alone trying to tie everything together at a macro level to provide executives and elected officials a clear picture of what they have to work with. Governments often realize that what started out as a simple plan has turned into a multi-faceted, enormous initiative that will cost lots of money, time, and resources to execute. Simply put, the more systems and spreadsheets you involve in this process, the more dysfunctional it becomes.

Additionally, one important element to consider for capital planning is the ability to communicate the plan to the public. Citizen engagement may already be an issue in your community, and not having the ability to accurately let residents know where their hard-earned taxpayer dollars are going is a huge problem. As stated before, most capital budgeting initiatives are highly visible to the public. An initiative to improve a local park would naturally attract the attention of the citizens of the affected community. Since citizens have a vested interest in knowing how their tax money is being handled, the ability to report on how community projects are funded is a crucial part to any kind of capital planning. Without the tools and systems in place to easily access how a capital initiative is being funded and what the critical elements of the project are, the public will most likely lose trust and support of the government you are representing.

With these potential pitfalls in mind, modern cloud budgeting solutions offer answers to the previously discussed problems. These solutions, like the leading cloud budgeting and performance platform, The OpenGov Cloud™, understand and allow for the intricacies of capital planning and the nuances that go into each unique project. OpenGov’s cloud-based software allows you to streamline and transform your end-to-end budgeting process, seamlessly tie budget dollars to key organizational initiatives, draw actionable insights for decision making, and promote these projects in a way that educate, engage and build trust with your residents.

For more information on how OpenGov’s solutions address the common pitfalls of capital budgeting, we invite you to register for our upcoming webinar titled, “Unlocking the Potential of Capital Planning.”


Categories: Budgeting, Capital Projects

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