Give a voice to stakeholders and simplify your processes to produce the best returns.
In my last blog, I mentioned that I led the financial planning for a rollout of 1,400 convenience store remodels across 10 markets. We had to allocate a budget of $120M for the interior remodels across myriad states of repair. To ensure our planning was done in a timely manner and to get everyone started on the project, we had to find a way to get the maximum value out of the planning process, and do it in the simplest way possible. In the end, the stores looked pretty good and most agreed that the process was fair.
I’ll share some of the changes we made to our approach to gain rapid alignment across all the affected departments and how we successfully executed on this huge challenge.
Agree on a Fair Approach
The first challenge on the project was to fairly allocate capital based on need and expected return.
No surprise, we had to use standard costs, but we gave preliminary budgets to each market based on what we knew about the markets, such as store lease time remaining, profits and what we could deduce from our capital and asset systems. We then asked the Construction Managers (CM’s) and Facility Managers (FM’s) to try to live within the initial allocation and gave them one week to develop up to 100 (each) draft budgets based on what they knew about the store conditions. We then allowed each to argue their case as for a greater share and the group agreed on a final market allocation. When you’re rounding to the half million, you probably know enough.
With the new numbers the CM’s and FM’s had to adjust all budgets again, this time with the Operations teams, based on what everyone knew and an agreed upon sales increase associated with each remodel. At each stage, we kept the planning teams small to allow for fast decision-making with existing knowledge and experience. Senior Management trusted the team and only weighed in on extremely expensive projects.
In that process, the most important part by far was working with Operations.
I don’t care how much you think you know about someone else’s area, if you don’t live with the results, you can’t make the decision by yourself. By involving them in the final planning, we were able to:
- Ensure their highest priorities were met
- Increase actual returns
Operations understood the required sales increase in the pro forma would be included in their budget. They could raise or lower the budget based on the returns that they would have to produce. We also had all parties sign the remodel plan to ensure ownership.
Let it Happen
With 1,400 store-level plans in hand, we got ready to start. We:
- Selected one small market and tested our “around the clock” schedule to work out logistics issues.
- Identified approximately four contractors in each market and negotiated standardized pricing, rather than bidding out each project.
- Convinced city inspectors to meet in the middle of the night to sign off on work completed at that hour.
- Assembled stocking teams from the employees that were displaced by the temporary closings (note: this revealed many leaders who were later promoted).
- Negotiated excellent pricing from equipment vendors, given the large orders and predictable scheduling. Additionally, equipment was shipped directly to the stores, saving warehouse expense.
- Advised our accountants that some projects would be over budget and negotiated the ability to approve variances as long as we stayed within each market’s spending budget. We also closed projects quickly to free up contingency monies in the market pool.
Lastly, we set up weekly communications with Operations to advise them of the remodel schedule so employees could get their hours at other stores, as well as to alert customers and direct them to other stores during construction. Maintaining schedules and cost status in Excel was a full time job for one admin, but one CM commented that good projects are 80% planning / 20% execution.
We were able to move quickly because we empowered those at the front to make adjustments and provided reporting that allowed Senior Management to maintain trust in their decisions.
Fair to Everyone
As I mentioned, we got Ops to sign up for the sales lift required to meet the capital hurdle rate. However, fair must mean fair to everyone. Whenever you do a major remodel, one of the first rules is to leave it fixed – this means getting ahead on any known maintenance needs while you’re there.
The objection was raised that including maintenance in a remodel project unfairly raised the sales budget, because increases then had to include returns on the maintenance items. We adjusted our standard construction template to separate return and non-return items, only requiring sales lifts from those improvements that should generate them. The Pro Forma included the sales (and expense) increases only for those items that should generate returns. The most overlooked part of capital programs is that success depends on the entire team’s commitment, and to achieve that they must believe they have contributed to the plan.
To run this fast, you have to take a fresh look at your processes and remember what you are trying to accomplish with your controls. With all data on one platform, you can preserve those elements with reporting while removing restrictive constraints that will prevent your team from succeeding. Think “manage, not control.”
At Tango, our solution to capital projects organizes the data collection needed to execute a program like this and integrates with an online pro forma, thus simplifying alignment of costs and return expectations. With the pro forma online, sales lifts can be more easily budgeted and allows complete reporting across capital programs. Learn more about how to improve returns on your capital programs – request a demo.
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