Did you know you could authorize a $20 million USD capital project without requesting any additional budget?
It’s a compelling way to kick off meetings with clients who have large capital construction programs. Surprisingly, we start conversations like that more often than you’d think. How can we make many millions of dollars materialize? A common problem with large organizations is they have millions of dollars tied up in latent capital. We locate it, liberate it, and let it be spent.
The team at Enstoa Consulting identifies dormant commitments that can be closed out and have the remaining value allocated to other initiatives. Individually, the amounts may not be big. With a sufficiently large capital program, however, there can be hundreds or thousands of such commitments. In the aggregate, we often find organizations have enormous sums—often tens of millions of dollars—of latent capital.
Below is one of Enstoa’s tools we’ve nicknamed the Harvester, an analytics module that identifies commitments with latent capital. Each circle represents an open commitment that has value remaining. When these dormant commitments go unnoticed, they remain on the books, inflate the value of outstanding commitments, and reduce the capital an organization budgets for new projects.
While an organization may rejoice in being able to reallocate millions of dollars of latent capital represented in the dashboard above, we shouldn’t overlook the unfortunately large opportunity cost this represents. Assuming 8% cost of capital, the opportunity cost of having this capital latent for so long—in many cases for years—was $2.1 million USD per year.
Project teams who are closest to the work being conducted need tools that provide transparency of the financial transactions related to their projects—and at the detail the project teams need to effectively manage their projects. Without that visibility, latent capital is certain to be a systemic problem.
Enterprise project management solutions such as Oracle Primavera Unifier, integrated with the enterprise financial system, provide visibility to project teams through business process automation. Primavera Unifier’s workflow-driven business processes track the status of financial and other critical project-related information, enable timely administrative and financial close-out of projects, and ensure latent capital is liberated.
Steven Mattson Hayhurst is a Vice President of Consulting at Enstoa, the leading systems integrator for capital projects worldwide. Follow Steven on Twitter at twitter.com/mattsonhayhurst.