What happens if the CEO changes just one figure?

A new assumption can alter the entire CAPEX portfolio.

BOARDROOM QUESTIONS
The questions your portfolio should be able to answer.

The Executive Board is in the boardroom.

On the screen:

200 investment projects.

500 million euros in CAPEX.

The portfolio has been calculated.

The budget, expected value contributions, resources, dependencies and strategic criteria have

all

been taken into account.

The project mix is finalised.

Then the CEO asks a single question:

“What happens if we reduce the CAPEX budget by 10 per cent?”

One figure changes.

EUR 500 million → EUR 450 million.

But the consequence may not be limited to just EUR 50 million.

It could alter the entire portfolio.

One Number Changes. The Entire Portfolio Should Answer.

Which projects will be dropped?

Which new projects will be added?

Which dependencies will influence the selection?

Which resources will become available?

Which ones will suddenly become a bottleneck?

How will the expected portfolio value change?

Which strategic objectives will be met to a greater or lesser extent?

And which combination of projects is now the best option under 450 million euros?

A small change in the initial situation can trigger a major shift in the optimal capital allocation.

Most board presentations are prepared for questions that were asked yesterday

Before an important investment decision is made

,

an extensive process usually begins long before the actual board meeting.

Business units provide data.

Finance reviews business cases.

Controlling consolidates the figures.

Strategy assesses priorities.

Operations reviews resources.

Scenarios are drawn up.

PowerPoint presentations are being prepared.

Then comes the day of decision.

Base case.

Best case.

Worst case.

Perhaps two more scenarios.

Everything is prepared.

Until someone asks a question that hasn’t been prepared for.

“And what happens if …?”

These five words can trigger a complete analysis cycle.

“What happens if we invest 50 million less?”

“What happens if Project A becomes mandatory?”

“What happens if we prioritise growth more highly?”

“What happens if this resource is unavailable?”

“What happens if we increase our minimum liquidity?”

Suddenly, the prepared presentation is no longer sufficient.

The question is new.

The answer does not yet exist.

The question arises in the boardroom. The calculation begins afterwards.

In traditional processes, a loop can arise precisely at this point.

The board formulates a new assumption.

Finance takes it on board.

Controlling calculates the implications.

Business units may need to provide new data.

Dependencies are reviewed again.

Scenarios are updated.

Management

reports are revised.

Then another meeting follows.

And that is where the next question may arise.

Question → Analysis → Consolidation → Presentation → Meeting → New Question → Repeat.

The problem isn’t that companies can’t do the maths.

The problem is the separation between the question and the calculation.

What if both could take place in the same meeting?

The CEO changes the CAPEX budget.

EUR 500 million → EUR 450 million.

The portfolio is recalculated under the new budget limit.

The revised project combination is displayed.

The Executive Board compares both options.

Then comes the next question.

The CFO says:

“Let’s increase the minimum liquidity by a further 25 million euros.”

New condition.

New calculation.

The COO says:

“This production capacity will not be available next year.”

New restriction.

New calculation.

Strategy states:

“International growth is being given higher priority.”

New assumption.

New calculation.

The discussion evolves – and the portfolio evolves with it.

That is the difference between a report and a decision model

A report shows what has been calculated.

A decision model can calculate what happens when conditions change.

This is a fundamental difference.

The report answers:

“What does our current scenario look like?”

The decision model answers:

“How does our optimal capital allocation change if we alter an assumption?”

This means the boardroom is not just a place where results are presented.

It can become a place where alternatives are explored in real time.

A figure can change more than

just

a figure

Suppose the budget falls by 10 per cent.

It would be natural to assume that simply 10 per cent fewer projects would be implemented.

But that is not necessarily how a portfolio works.

A large project may be dropped, thereby enabling several smaller projects.

The cancellation of one project may also rule out a dependent project.

A resource that becomes available may enable a new combination of projects.

A strategic minimum requirement may prevent certain investments from being cancelled.

A change in a constraint can alter the structure of the entire portfolio.

Budget is just a number

The CEO could also change another variable.

CAPEX

budget.

Strategic weighting.

Minimum

requirement.

Resource availability.

Project dependency.

Time

horizon.

Expected value contribution.

Any quantifiable change reflected in the decision-making model can influence the permissible decision space.

And thus, potentially

,

the optimal project combination.

The CEO does not change the strategy at the click of a button

This is an important limitation.

Strategy is not created by software.

An algorithm does not decide whether growth is more important than liquidity.

It does not decide how much risk a company should take.

It does not decide which markets are strategically relevant.

And it does not decide what future a company should pursue.

These are management decisions.

The board defines objectives, priorities, assumptions and limits.

Mathematical optimisation then calculates the consequences of these parameters within the defined decision-making model.

Management defines the change. Mathematics calculates the consequences.

And then comes the second question

The real strength does not come from the first recalculation.

It comes from the next question.

500 million becomes 450 million.

The new portfolio appears.

The CEO sees the result and says:

“Interesting. What happens at 460 million?”

New calculation.

“And at 470 million?”

New calculation.

“At what budget does Project A re-enter the portfolio?”

New calculation.

“What do we need to change to make Project B feasible?”

New calculation.

A static investment approval is now turning into an iterative decision-making discussion.

Question. Calculate. Compare. Decide.

The process is changing.

No longer:

QUESTION

End meeting.

Analyse.

Consolidate.

Create a new presentation.

Next meeting.

Rather,:

QUESTION → CALCULATE → COMPARE → DECIDE

within the same decision-making situation.

That is precisely the idea behind the CAPEX Live Boardroom Simulation.

Speed is not an end in itself

A faster calculation is only valuable if it improves the basis for decision-making.

The aim is not to press a button as quickly as possible.

The aim is to be able to examine more relevant alternatives before capital is tied up.

A faster recalculation can enable the board to ask additional questions.

To test more assumptions.

To highlight trade-offs.

To explore boundaries.

And to compare different scenarios with one another.

Decision Velocity does not mean deciding faster, no matter what.

It means making the consequences of changed assumptions available for decision-making more quickly.

How much does a question cost today?

This perspective leads to another interesting management question.

What does it cost a company when a new boardroom question triggers a complete analysis cycle?

Finance.

Controlling.

Business Units.

Strategy.

Operations.

Management.

Possibly external consultants.

New data.

New models.

New alignments.

New presentations.

Every iteration incurs a decision cost.

And every delay can also generate a cost of delay.

If the same changes can be recalculated within an existing mathematical model, it is not just the speed that changes.

The effort involved in repeated decision cycles can also be reduced.

200 projects. A question.

Let’s imagine the situation once again.

200 projects.

EUR 500 million CAPEX.

A calculated portfolio.

The CEO changes a figure:

500 → 450.

The system does not merely consider the projects that appear to be directly affected by the 50 million euros.

The revised budget limit is applied to the entire defined decision space.

This can result in a new combination.

One number changes.

The entire portfolio responds.

This is Live Boardroom Simulation

StratePlan was developed to mathematically optimise complex CAPEX and project portfolios under defined conditions and to quickly recalculate changed assumptions.

Budget.

Resources.

Dependencies.

Strategic criteria.

Further modelable constraints.

If management changes any of these conditions, the portfolio can be re-optimised under the new parameters.

This means that a board meeting does not necessarily have to end at the first unplanned question.

The question can become the starting point for the next calculation.

What Happens When the CEO Changes One Number?

Perhaps it’s just the budget that changes.

Perhaps a strategic priority.

Perhaps a resource.

Perhaps a dependency.

But if a relevant condition changes, the board should be able to see what that change means for the entire portfolio.

Not at the next meeting.

Not after the next round of voting.

But whilst the decision is being discussed.

Management asks the question.

The model calculates the consequences.

The board compares the alternatives.

The board decides.

QUESTION. CALCULATE. COMPARE. DECIDE.

DON’T TRUST US. CALCULATE IT.