Key takeaways
- A CAPEX post-audit looks back at whether a project delivered what was approved, and why, so that the next investment is better.
- Break the difference in return into three parts: investment amount, timing and benefits.
- When deciding whether to invest more, look only at money not yet spent and future benefits.
A company invested THB 50 million in an ERP system. When approval was requested, the paper said it would cut costs and improve efficiency by several million a year. Three years on, no one can say how much was actually achieved. The person who proposed it has moved to other projects, and a new investment request is arriving with the same assumptions as before.
Investing without looking back at the results is like planting a tree without ever returning to see whether it has grown, then planting the same way again next year. A post-audit is not about finding someone to blame; it is about making the organisation's forecasts better.
When to do it, and for which projects
It is not necessary for every project. Workable criteria are projects above the limit approved by the board, projects with large deviations, and types of project the company will repeat. The right time is once the project has been running long enough for results to show, for example 12-24 months, with a brief review after handover covering budget and timing.
The key conditions must be set at the approval stage: specify the metrics, the owner, the baseline and how the benefits will be proven, for example how many staff were actually reduced versus merely time saved, and whether cash actually changed.
Example: breaking down where the return went
A hypothetical example. Benefits are annual cash flows in THB million, with a 10% discount rate and no tax, for simplicity.
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
|---|---|---|---|---|---|---|---|---|
| At approval | (50) | 14 | 14 | 14 | 14 | 14 | 14 | 14 |
| Actual results and new forecast | (58) | 0 | 5 | 9 | 11 | 12 | 12 | 12 |
| Bridge | NPV (THB million) |
|---|---|
| NPV at approval (IRR 20.3%) | 18.16 |
| Investment overrun of THB 8 million | (8.00) |
| Handover delayed by 1 year | (12.73) |
| Benefits below plan | (16.64) |
| Current NPV (IRR 1.0%) | (19.21) |
The largest damage did not come from the budget overrun but from the benefits shortfall and the delay, together THB 29.37 million. Controlling only the construction budget or the installation budget is therefore not enough.
Separating the past from today's decision
Continuing the earlier example, at the end of year 3 there is a proposal to invest a further THB 6 million to fix the system, expected to add benefits of THB 3 million a year in years 4-7. The PV of the additional benefits at 10% is THB 9.51 million; less the THB 6 million investment, the incremental NPV is +THB 3.51 million. It should therefore be considered, even though the original project is loss-making, because the THB 58 million already spent is a sunk cost. The benefit assumptions must be tested more rigorously than before.
What the report should cover
| Topic | Questions |
|---|---|
| Investment amount | Overrun because of a change in scope, a change in prices or underestimation |
| Time | At which step the delay occurred and who was waiting |
| Benefits | Actual cash received or only indirect benefits |
| Assumptions | Which was the most wrong, and was there any warning data |
| Lessons | How the forms and approval criteria must change |
Have someone other than the project proposer prepare or review the audit, and keep learning separate from punishment. If every post-audit ends in blame, the team will next time submit only numbers that favour themselves.
Write investment requests so they can be audited from the start
A good post-audit starts on the day the approval request is written. If the document says only "improve efficiency", it can never be proven whether the project succeeded. Convert benefits into things that can be counted, such as how many days the closing time is reduced, how much annual repair cost falls, or how many units capacity increases, and separate which benefits are cash and which are merely freed-up time. If the freed-up time does not lead to hiring fewer people or generating more revenue, it should not be counted as cash in the return.
Write the worst case and stop criteria in advance, for example how far costs may exceed the plan, or how long handover may be delayed, before the project must return for fresh approval. Large projects can release funds in tranches tied to milestones, so the approver can review before releasing the next tranche, rather than approving the whole project at once.
After several projects, combine the results into organisation-wide statistics, for example which units often overstate benefits, which types of project run behind plan, and how contingency figures should be adjusted. This information helps the board read the next request. Use it with care, and do not apply a blanket haircut to every project, because data quality and the nature of each investment differ.
Next steps
- List large CAPEX projects from the past 3 years, with their approval documents
- Choose 1-2 projects for the first post-audit
- Add fields for metrics, baseline and review date to the approval form
- Build a bridge that separates investment amount, timing and benefits
- Use the lessons to adjust assumptions in the next request
- Report the results to the approver or the board