The CapEx (Capital Expenditure) approval process is a structured approach that organizations use to evaluate, authorize, and control investments in long-term assets such as property, equipment, or major projects. Here’s a step-by-step overview of a typical CapEx approval process:
1. Identification of Need
Initiator: Department head or project manager.
Purpose: Recognize the need for a capital investment (e.g., new equipment, expansion, IT systems).
Documentation: Initial concept note or business case.
2. Business Case Development
Contents:
Project description and objectives
Cost estimates and vendor quotes
Benefits (financial, operational, strategic)
Risk analysis
ROI, NPV, IRR, and payback period
Ownership: Typically by finance or project team.
3. Preliminary Review
Participants: Immediate supervisor or department head.
Goal: Ensure alignment with departmental goals and filter out non-viable requests.
4. Submission of CapEx Request
Documentation: Formal CapEx request form, including detailed budget and business case.
Tool: Often managed through an ERP or CapEx workflow system (e.g., SAP, Oracle, Coupa, PS CapEx).
5. Multi-Level Approval Workflow
Approvals Usually Involve:
Departmental Manager
Finance Department
Procurement (if applicable)
Senior Management (CFO, CEO, COO)
Board of Directors (for large-scale investments)
Criteria Considered:
Strategic fit
Budget availability
Compliance with internal policies
Financial viability
6. Final Approval & Capital Allocation
Outcome: Approval or rejection of the request.
Action: Allocation of funds and issuance of a CapEx code/project number for tracking.
7. Implementation & Monitoring
Responsibility: Project team or responsible department.
Finance Oversight: Budget tracking, milestone reviews, cost control.
8. Post-Implementation Review
Purpose: Evaluate whether the investment delivered expected results.
Metrics: Compare actual vs. projected ROI, cost, schedule, and operational performance.
Optional Enhancements
Digital tools: Use of automated workflows and dashboards.
Policy document: Establish and enforce a formal CapEx policy to standardize the process.
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