Capital planning is one of the most critical aspects of real estate management. It’s also among the most difficult. Trying to figure out the impact of current and future investments is challenging—the whole process is fraught with many unknowns and significant risks.

The good news emerging for today’s real estate managers is that data can help; its importance in capital planning efforts is growing. With the availability of improved software, we are capturing more and better information. Managers today have access to a much better analytical “toolkit” than ever before. It makes it easy to decide how to invest limited capital in more meaningful and efficient ways.

For those looking to understand how data can help the capital planning process, here are three key areas:

Comprehensive, Accurate Knowledge

We’ve mentioned the benefits of Big Data before. Having plenty of flexible, large scale and cross-departmental data greatly enhances capital planning efforts. It allows managers to have better insight on the direct and indirect effects of potential investments.

In the past, capital investments and financial analysis focused on investing in large expenditures. This was due to limited data or knowledge of individual building components. Take HVAC, for instance. Before big data analytics, there was only one way to improve cooling and heating efficiency in an office building. You typically had to invest in a new building-wide HVAC system.

Today’s building component systems allow managers to understand their buildings in more detail. This data helps avoid costly, one-size-fits-all “solutions”. Managers can measure the impact of specific floors, space configurations and employee densities on building temperature and energy use. This trend helps managers develop incremental and bespoke capital management plans. They can make changes that are smaller, but more impactful and cost-effective.

The Ability to Prioritize

Many organizations run their cost-benefit analyses in Microsoft Excel. But the limits of the spreadsheet program are evident in multi-phase scenario and capital planning exercises. Each scenario or potential strategy needs a completely new financial model. Data is reliant on manual inputs, and the due diligence process is time-intensive.

Building data and the software managing it can help. It can be used to enhance scenario testing and optimize capital investments. Management software can extract, categorize and analyze building data. It also optimizes for multiple scenarios much faster than traditional spreadsheet methods. This enhances a firm’s ability to prioritize, rank and justify certain capital decisions. The impact is greatest over the life cycle of the asset.

Data-Driven Capital Planning

Capital strategies are too often influenced by biases. This can lead to misallocation or overallocation of funds. Sometimes firms build lengthy capital planning strategies too early. They proceed without fully understanding their key issues and objectives.

Data can reveal operating deficiencies or potential capital requirements. It adds another level of pragmatism to capital planning efforts by leveraging information-based conclusions. Does your portfolio really need a complete overhaul of its lighting to improve worker morale and comfort? Or are their other potential factors impacting productivity, such as air quality or noise? Without a clear picture of all options, capital planning efforts will not be completely effective.

Photo: Micolas / Shutterstock.com