Proposing investment in new laboratory instruments is a challenging task for even the most experienced managers. This guide is a must-read for anyone looking to navigate the complexities of capital investment proposals with confidence.
- Understand your company’s approval process
- Quantify the financial benefits of your investment
- Craft a concise business case using the NABC framework
- Prepare for potential risks, improving your chances of approval and showcasing your credibility within the company
Running a laboratory is hard work. Coaching and coordinating all the unique techs in the lab, delivering accurate results, and meeting demanding production requirements is hard enough when your equipment is working well. And maintaining this level of performance means investing in new instruments, software, services or all the above.
Preparing a capital request for amounts that can rival our own home mortgages can be a daunting task. Experienced managers know the number of approvals and long timelines that can come with these requests. For less experienced team members, uncertainty about the process and fear of rejection can be major barriers to even taking the first steps. Fortunately, there are established best practices that can reduce your anxiety and increase your probability of winning your share of the company capital budget.
Understand Your Company’s Processes
Your company most likely has a process in place for reviewing and approving capital investment proposals. For some companies, that might mean that you knock on the CEO’s door and have a chat. For others, it could require 20 approvals in an electronic system, a dozen forms, and three PowerPoint pitch decks. In any case, there is a process, and the better you understand it, the more likely you are to be prepared for every step. Even if you are an experienced manager in your company, you should check to see if anything has changed if it has been a while since you last made a purchase.
Here are a few questions to guide your process research:
Budget vs. funding
Do different processes exist for budgeting and funding? A business might allow for hundreds of requests during the annual budgeting process, but then follow a rigorous and competitive funding process before officially approving a select few.
Deadlines
When does your business set budgets? What is required for your investment to even be considered for funding? Many businesses review proposals three to six months before the end of the fiscal year and release funds the following year. Knowing which documents are required well in advance makes it easier to plan ahead.
Approvers
Who will need to approve the budget and funding? What are their primary interests, responsibilities and concerns? Who is most likely to object or ask for more information?
Paper process
What is the actual submission process? Is it electronic or paper? What analysis or supporting documentation is required? Are large contracts mandated for your type of purchase? Submitting correctly the first time can significantly improve your chances of approval.
Answering these questions goes a long way to planning out the tasks and timelines ahead to get your project underway.
Quantify the Benefits of Your Laboratory Investment
When it comes to investments, business leaders speak the language of money. This is where many of us get hung up if we are not as financially fluent. Thankfully, you do not need to be an expert to turn your problem or opportunity into a return on investment (ROI) calculation that resonates with your company’s accountants and managers. In fact, presenting any type of ROI calculation will likely put you ahead of your peers in competition for precious company resources.
Follow the steps below to convert your proposed capital spend into a business investment with a healthy return that your approvers can understand.
Determine the type of value
Figure out if your solution will reduce cost, help your company sell more products, reduce risks or help them to earn money more quickly (i.e. by developing products faster). These are the primary factors that drive profits in a business. Knowing which category your solution falls into will help you determine where to spend your time when quantifying your value.
Show your logic
Once you know the value category, spell out the logic for achieving the value. Imagine you are proposing a project to reduce the risk of production downtime caused by a critical lab instrument breakdown. You may start by estimating the possible hours of production downtime and multiply that number by the production cost per hour to obtain a total downtime cost. Regardless of the exact methods, just be clear about how you arrived at the value to the business.
Ask for help
Process engineers and accountants are excellent internal resources as you build out your logic. They often love this type of problem-solving challenge. Offer to buy lunch for them while you walk through your business case. You can also seek advice from a colleague who has recently completed a successful capital project. Reputable suppliers can also be great resources and may even have special tools to help you quantify the problems their products solve. A good salesperson will be eager to support your quantification of value.
Example: valuing a reduced risk of losing a $1,000,000 customer
Expected loss at 30% risk
Expected loss at 5% risk
Another option is to calculate the cost of a potential loss based on the risk of a potential breakdown. Comparing these numbers to the cost of the investment gives leaders the data they need to make a decision.
Build a Concise Business Case
Executives are busy people. With so many critical operations demanding their time and attention, they often don’t know all the operational details impacted by a given investment request. They need clear, concise communication when they need to make a decision, especially when money is involved. Some CFOs will immediately dismiss a proposal that is poorly written, confusing, or lacking a clear ROI—and judge it more harshly if it is resubmitted at a later date.
Summarizing a complicated case for a complex scientific instrument can be challenging, especially if the people reviewing it don’t have a technical background. Fortunately, there is a simple framework for building what marketing professionals call your “value proposition” to convey how a purchase will solve a problem. Stanford Research Institute has popularized a framework called NABC: Needs, Approach, Benefits and Competing Alternatives. Considering the questions below is key to a strong NABC statement.
N — Needs
Concisely outline the problem you are setting out to solve. Is this a disruption to your current processes or an obstacle to achieving an objective? What does it look like? Who is experiencing it? What business challenges does it cause? How do you describe the deviation from the expected or ideal state?
A — Approach
Describe the whole solution you are recommending. How does it address the needs above? Are supporting hardware or software components needed? Are services like installation, onboarding and training required? What are the ongoing maintenance requirements? What internal or external resources could be required?
B — Benefits
How will the business benefit from solving the problem? From your quantitative analysis, how does the financial benefit compare to the costs of the approach you recommend? Does the problem have strategic value for the business, your boss, or your boss’s boss?
C — Competing alternatives
What alternatives did you consider and reject? Did you consider multiple suppliers of the same solution, and why is one better? Did you prepare a comparative technical specification? Thinking through the alternatives shows you did your homework and found the truly superior solution, one that aligns with the company’s resources and priorities.
When crafting your NABC statement, consider asking a salesperson for input. They can often provide supplemental materials to help you build your case and may be able to co-present your proposal to an approvals team.
By following the NABC framework, you can build a business case that could be explained in five minutes and could even be attached to your company’s standard capital proposal request.
Prepare for Risks
Managers appreciate when their team members consider what can go wrong. They love it even more when you develop a proactive plan to solve a problem before it happens. Consider these common risks for laboratory capital investments and develop a plan to address them.
Implementation risks
Can our team install the solution, or will help be required? Can our existing resources use the solution, or will training be required? If training is needed, how is that delivered now and in the future?
Integration risks
Will the solution fit with our existing systems? Will it connect to our hardware and software? If not, how will we address that ahead of time? What are the possible costs of additional integration resources?
Solution risks
What if the solution does not deliver the value promised? Does the supplier have a history of delivering for your company? Is there a warranty? Reputable references? A product demo?
Support risks
If onsite support is needed in the future, how prepared is your supplier to deliver it? If a service call takes 3 to 4 weeks, how will you manage that downtime? Does the supplier offer phone or web support around the clock?
Making investments in your lab to ensure uptime, efficiency and accuracy is a challenging, complex, and ongoing task. Following the guidelines above won’t guarantee that your company will support your investment, but it will certainly improve your chances of success. This level of preparation will also build your credibility as a serious player in your business.
Preparing your next capital proposal?
Your local Alpha Technologies sales manager can support you in preparing your next capital proposal. Contact us for more information or to set up a meeting.
Alpha Technologies
Alpha Technologies is the world leader in design and manufacturing of instruments and software that deliver precision analysis of rubber and elastomeric materials. Premier RPA™ with Sub-Zero™ Technology is their newest offering in a long line of products that measure the dynamic, physical and processability characteristics of rubbers and polymers. With a dedication to helping clients improve and enable performance, value and safety, Alpha continues to innovate and advance with best-in-class testing solutions. Headquartered in Hudson, Ohio, the company is staffed with highly trained professionals around the world who are ready to assist clients in achieving their goals.