Too Many Projects, Too Little Budget: Optimizing CAPEX and Project Portfolios

Too many projects. Too little budget. Limited resources. Competing business units. Mandatory projects. Project dependencies. And every project manager considers their project to be important.

This is precisely where one of the central problems of CAPEX planning and investment management begins.

When the total of all proposed investments exceeds the available budget, traditional project planning alone is no longer sufficient.

Management must decide:

• Which CAPEX projects should be funded?
• Which projects should be postponed or canceled?
• How should CAPEX be allocated across projects?
• How should CAPEX be allocated across business units?
• How can limited resources be used most effectively?
• Which combination of projects maximizes NPV, ROI, or another defined measure of corporate value?
• How are mandatory projects taken into account?
• How do project dependencies affect the selection?
• How should the portfolio be planned over several years?

The key insight is this:

If not all projects can be funded, the result is not just a prioritization problem. It is a portfolio optimization problem.

The relevant question is therefore not just:

“Which project is the most important?”

But rather:

“Which combination of our projects generates the highest defined total value within the available budget and all other constraints?”

Table of Contents

• Too Many Projects, Too Little Budget: What to Do?
• Why traditional project prioritization isn’t always enough
• How can you prioritize CAPEX projects?
• How do you prioritize projects with a limited budget?
• How do you optimally allocate CAPEX across projects?
• How do you allocate CAPEX across business units?
• How can you reduce CAPEX without unnecessarily sacrificing ROI?
• How do you maximize NPV with a fixed budget?
• How do you maximize ROI with a fixed CAPEX?
• How do you find the best combination of projects?
• How do you compare investment projects?
• How do you optimize an investment portfolio under constraints?
• How do you allocate limited resources to projects?
• Which CAPEX projects should be eliminated?
• How do you create a 5-year CAPEX plan?
• How do you model project dependencies in CAPEX planning?
• How do you account for mandatory projects in portfolio optimization?
• How do you optimize CAPEX across multiple plants?
• How do you optimize CAPEX across multiple business units?
• Why does project selection become so mathematically complex?
• How much additional value does additional CAPEX generate?
• Scenario Analysis for CAPEX Decisions
• CAPEX Decisions in Real Time in the Boardroom
• How StratePlan optimizes CAPEX and project portfolios
• Frequently Asked Questions

Too many projects, too little budget: What to do?

The situation is similar in many companies.

Business units, plants, and functional departments submit their capital projects.

For example:

Requested CAPEX: €1.2 billion

Available CAPEX: €800 million

This means the investment requests exceed the available budget by:

€400 million

The company must decide which projects will receive the available 800 million euros.

Typical procedures include:

• Project prioritization
• Scoring models
• Management discussions
• Budgets by business unit
• Excel spreadsheets
• Custom business cases

These methods can provide important information.

However, they do not automatically answer the crucial combinatorial question:

Which combination of all available projects generates the highest total value within the 800 million euros?

This very question is the starting point for mathematical portfolio optimization.

Why traditional project prioritization isn’t always enough

Suppose there are three projects to choose from:

Available budget:

100 million euros

Project A has the highest individual value at 150 million euros.

In a simple ranking, A could therefore be ranked first.

Portfolio A generates:

€150 million in value.

The combination of B and C also requires:

€100 million in CAPEX.

However, it generates:

€185 million in value.

With an identical budget, B + C thus generates €35 million more in expected total value.

The best individual project does not necessarily lead to the best portfolio.

That is precisely why a distinction must be made between project prioritization and portfolio optimization.

How can CAPEX projects be prioritized?

CAPEX projects can be evaluated based on financial, strategic, and operational criteria.

Typical criteria include:

• NPV (Net Present Value)
• ROI
• Cash flow
• Payback period
• Strategic relevance
• Risk Reduction
• Compliance
• Growth
• Productivity
• Efficiency

This assessment is important.

However, it should be distinguished from the actual portfolio selection.

A structured process might look like this:

1. Identify projects.

2. Evaluate projects.

3. Define the budget and constraints.

4. Calculate project combinations.

5. Compare scenarios.

6. Make a management decision.

Prioritization thus provides important input for the decision.

However, it does not have to be the end of the decision-making process.

How do you prioritize projects when the budget is limited?

When the budget is limited, the question shouldn’t just be:

“Which project has the highest priority?”

The more important question is:

“Which projects should be funded together within the available budget?”

A simple mathematical decision-making model can start with just three pieces of information:

• Project ID
• Investment
• Expected value

The following can also be taken into account:

• Resources
• Strategic criteria
• Project dependencies
• Mandatory projects
• Rules for business units
• Plants
• Planning periods

The limited budget is not taken into account only after a ranking has been established.

It becomes a direct component of the mathematical decision-making model.

How do you optimally allocate CAPEX to projects?

Allocating CAPEX to projects means distributing limited investment capital among competing investment opportunities.

A simple method is to rank the projects and allocate the budget from top to bottom.

However, this method can lead to suboptimal combinations.

Mathematical portfolio optimization, on the other hand, treats all relevant projects as a single decision problem.

One possible objective function is:

Maximize the total portfolio NPV within the available CAPEX budget.

Alternatively, other financial or strategic objectives can be used.

The decision is thus made not on a project-by-project basis, but at the portfolio level.

How do you allocate CAPEX across business units?

CAPEX allocation becomes more complex when multiple business units are competing for the same investment budget.

For example:

Total requirement:

€950 million

Available budget:

€650 million

One possible approach would be to reduce each business unit’s budget proportionally.

This is simple and transparent.

However, it does not automatically mean that the resulting overall portfolio will generate the highest enterprise value.

Instead, portfolio optimization can consider the projects of all business units collectively.

At the same time, governance rules can be taken into account.

For example:

Business Unit A receives at least 100 million €.

Business Unit B receives a maximum of €200 million.

Every strategically relevant region must receive at least one project.

This allows for the integration of company-wide optimization and organizational requirements.

How can CAPEX be reduced without unnecessarily sacrificing ROI?

When the investment budget needs to be reduced, across-the-board cuts are often made.

For example:

“Each business unit will reduce its CAPEX by 15 percent.”

Such a cut is simple from an organizational standpoint, but it may not be economically optimal.

An alternative question is:

“Which projects can be eliminated or postponed so that as much portfolio value as possible is preserved while reducing CAPEX?”

Example:

Current CAPEX: €600 million

New CAPEX limit: €500 million

The task is not necessarily:

“Cut each budget by 16.7 percent.”

Rather:

“Determine the best possible portfolio within a budget of 500 million euros.”

As a result, projects with a lower contribution may be removed from the portfolio, while particularly valuable investments are retained.

Whether the current ROI can be fully maintained depends on the specific projects.

However, portfolio optimization can specifically seek out the combination that achieves the highest defined value while reducing CAPEX.

How do you maximize NPV with a fixed budget?

Maximizing the net present value (NPV) is a classic problem in investment optimization.

For each project, the following may be known, for example:

• Total investment
• Expected cash flows
• NPV

The company has a fixed budget.

A simplified objective function is:

Maximize Σ NPVᵢ × xᵢ

subject to the budget constraint:

Σ investmentᵢ × xᵢ ≤ budget

Where:

xᵢ = 1 if project i is selected.

xᵢ = 0 if project i is not selected.

Additional constraints can be added.

This approach does not merely consider the NPV of individual projects; it optimizes the total portfolio NPV.

How do you maximize ROI with a fixed CAPEX?

With a fixed CAPEX, the available capital should be used as productively as possible.

The exact mathematical formulation depends on how ROI or economic value is defined within the company.

One possible management question is:

“Which combination of our investments generates the highest total economic contribution with 500 million euros in CAPEX?”

Depending on the company’s objectives, the following metrics can be used, for example:

• NPV
• Profit Contribution
• Cash flow
• ROI
• Utility
• Strategic Value
• Combined Targets

Important:

The objective function must be clearly defined.

Mathematical optimization can only optimize what has been formulated as an objective in the decision-making model.

How do you find the best combination of projects?

The best project combination cannot necessarily be determined by a simple ranking.

It results from the interplay of various factors:

• Project value
• Investment amount
• Resource requirements
• Project dependencies
• Mandatory projects
• Strategic Criteria
• Timing
• Budget constraints

The mathematical question is:

Which feasible combination best satisfies the defined objective function?

Here, “optimal” is always relative to the defined model.

For example, a portfolio may be optimal in terms of NPV.

Another portfolio may be more focused on growth.

Yet another may prioritize risk reduction.

Therefore, management must first define what “optimal” means for the specific decision.

How do you compare investment projects?

Investment projects can be compared based on various dimensions.

However, comparing individual projects is only the first level.

The second level is:

How do the projects function together as a portfolio?

For example, a project that is attractive on its own may consume a large portion of the budget or a scarce resource.

This can crowd out several other attractive projects.

Project comparison and portfolio selection are therefore two distinct levels of decision-making.

How do you optimize an investment portfolio under constraints?

Real-world investment portfolios almost always have constraints.

Typical examples include:

• Budget constraints
• Resource constraints
• Mandatory projects
• Project dependencies
• Minimum and maximum budgets
• Plant restrictions
• Strategic requirements
• Multi-year budgets

A mathematical portfolio model can take all of these conditions into account simultaneously.

For example:

Total CAPEX ≤ 800 million €

Engineering hours ≤ 30,000

Project 17 = Mandatory project

Project 22 requires Project 9

Business Unit A ≥ €100 million

Plant C ≤ €150 million

Only project combinations that meet all conditions are permitted.

Within this permissible decision space, the defined objective function is then optimized.

How do you allocate limited resources to projects?

Capital is often not the only scarce resource.

A company may have a sufficient investment budget but still lack adequate operational capacity.

Typical bottlenecks include:

• Engineering capacity
• IT specialists
• Project managers
• Production capacity
• Machine hours
• External service providers

A portfolio may therefore be financially feasible but not operationally viable.

Resource allocation should take these conditions directly into account.

For example:

CAPEX ≤ 600 million €

Engineering ≤ 25,000 hours

IT capacity ≤ 12,000 hours

Project management ≤ 8,000 hours

The optimization then considers only those portfolios that satisfy all resource constraints simultaneously.

Which CAPEX projects should be eliminated?

The question of which projects should be cut is often the subject of emotional and political debate.

Every project manager has arguments in favor of their project.

A mathematical alternative is to flip the question around.

Don’t decide first which projects to cut.

First, calculate which portfolio generates the highest defined total value under the new budget.

A comparison between the existing portfolio and the newly optimized one then reveals:

• which projects remain in the portfolio,
• which projects are dropped,
• which projects will be added,
• which portfolio value is retained,
• what trade-offs arise.

As a result, the management question shifts from:

“Which project should we cut?”

to:

“Which portfolio do we want to finance?”

How do you create a 5-year CAPEX plan?

A 5-year CAPEX plan should be more than just a list of planned investments for five fiscal years.

It should take into account:

• annual budgets
• project durations
• start dates
• resources per year
• Project dependencies
• Mandatory investments
• Strategic Goals

For example:

The mathematical question is:

Which projects should be launched and funded in which year to optimize the defined total value over the entire planning horizon?

This transforms a static investment list into a multi-year investment portfolio.

How do you model project dependencies in CAPEX planning?

Capital projects are often interdependent.

For example:

Project B requires Project A.

Mathematically, this can be simplified as:

B ≤ A

If B is selected, then A must also be selected.

Other rules may include:

A and B must be implemented together:

A = B

A and B must not be implemented at the same time:

A + B ≤ 1

At least one of the two projects must be implemented:

A + B ≥ 1

Project dependencies can significantly alter the attractiveness of individual investments.

For example, a project with a high expected value may require an additional prerequisite project.

This increases the actual capital and resource requirements of the decision.

How do you account for mandatory projects in portfolio optimization?

Not every investment project is optional.

Mandatory projects can arise, for example, due to:

• legal requirements
• compliance
• Occupational safety
• cybersecurity
• contractual obligations
• Critical Maintenance

A mandatory project is defined in the mathematical model as a fixed selection criterion.

For project M, for example:

M = 1

Example:

Total budget = 500 million €

Mandatory investments = €80 million

This leaves:

€420 million

for optimizing the remaining optional projects.

The mandatory project automatically becomes part of every permissible portfolio configuration.

How do you optimize CAPEX across multiple plants?

Manufacturing companies often have to allocate investment budgets across multiple plants.

For example:

• Plant in Germany
• Plant in the U.S.
• China Plant
• Poland Plant
• Mexico Plant

Traditional planning can initially assign each plant its own budget.

Global portfolio optimization, on the other hand, can initially consider all relevant investment projects collectively.

Plant-specific constraints can then be added.

For example:

Germany Plant ≥ 50 million €

Plant in the U.S. ≤ €200 million

At least one safety project per plant.

This allows local requirements to be integrated into a global investment decision.

The question is no longer just:

“How much budget does each plant get?”

But rather:

“What combination of investments across all plants generates the highest defined total value within our rules?”

How do you optimize CAPEX across multiple business units?

The same principle applies to business units.

Historical budget allocations can lead to capital being distributed primarily along existing organizational boundaries.

Company-wide portfolio optimization can start by considering a common investment pool.

This reveals, for example:

• which business units have particularly attractive projects,
• where additional capital generates the greatest marginal value,
• where the budget could be reduced,
• which strategic minimum allocations are necessary.

Management can then define governance rules.

The company defines the rules. The math calculates the consequences.

Why is project selection so mathematically complex?

The reason lies in the number of possible project combinations.

With N independent yes/no project decisions, there are theoretically:

2^N possible portfolios.

Real-world constraints reduce the number of permissible portfolios.

However, the fundamental problem remains combinatorial.

Selecting from among many CAPEX projects is therefore not merely a ranking problem.

It is a combinatorial decision problem.

How much additional value does additional CAPEX generate?

Portfolio optimization enables a strategically particularly interesting analysis.

Instead of calculating just a single budget, different budget levels can be compared with one another.

A simplified example:

These figures are for illustrative purposes only.

However, they illustrate an important relationship:

The additional portfolio value per additional unit of CAPEX does not have to be constant.

This allows management to identify:

• where additional capital is particularly valuable,
• which projects become feasible with an additional budget,
• at what budget level the marginal additional value begins to decline.

As a result, the budget discussion shifts from:

“How much CAPEX can we afford?”

to:

“What additional corporate value do we gain from additional CAPEX?”

Scenario Analysis for CAPEX Decisions

Portfolio optimization becomes particularly relevant when market conditions change.

Typical management questions include:

What happens if our CAPEX budget decreases by 15 percent?

Which projects would we finance with an additional 50 million euros?

What happens if Project 27 becomes a mandatory project?

What happens if engineering capacity is reduced by 20 percent?

How will the portfolio change if we place greater strategic emphasis on growth?

What happens if a plant requires a minimum investment?

The portfolio can be recalculated for each change.

Afterward, the following can be compared, among other things:

• selected projects
• projects not selected
• Portfolio Value
• NPV
• CAPEX
• Resource Utilization
• Strategic Contribution

Scenario analysis changes the conditions. Portfolio optimization calculates the consequences.

CAPEX Decisions Made in Real Time in the Boardroom

Traditional CAPEX processes often require multiple rounds of coordination.

A budget change can result in new:

• Excel files,
• coordination with business units,
• prioritization rounds,
• management discussions

.

A CAPEX Live Boardroom Simulation takes a different approach.

The portfolio model is already prepared.

The CFO asks:

“What happens if we reduce the CAPEX budget from 600 to 500 million euros?”

The budget is adjusted.

The portfolio is recalculated.

The CEO asks:

“What additional projects would we finance with an extra 50 million euros?”

The portfolio is recalculated.

The COO asks:

“What happens if engineering capacity is reduced by 20 percent?”

The portfolio is recalculated.

The Investment Committee asks:

“What happens if Project 42 becomes mandatory?”

The portfolio is recalculated.

This transforms a static budget discussion into an interactive portfolio decision.

Question. Calculation. Comparison. Decision.

How StratePlan Optimizes CAPEX and Project Portfolios

StratePlan is a mathematical decision-intelligence platform for capital allocation, CAPEX optimization, and complex project portfolio decisions.

You can get started with a simple data structure.

A basic dataset might include, for example:

• Project ID
• Investment
• Expected value, revenue, or NPV

For more complex decision-making models, the following can be added:

• Strategic criteria
• Resource constraints
• Project dependencies
• Mandatory projects
• Restrictions for business units
• Plant restrictions
• Multi-Year Budgets

StratePlan uses this information to calculate project combinations for the defined objective function and the modeled constraints.

This allows you to examine management questions such as the following:

• Which projects should we finance with our available CAPEX?
• Which project combination maximizes the portfolio NPV?
• Which combination maximizes our defined portfolio value?
• How can we reduce CAPEX while preserving as much value as possible?
• Which projects would be removed from the portfolio in the event of a budget cut?
• Which projects will be added if the budget is increased?
• How should we allocate CAPEX across business units?
• How should we allocate CAPEX across multiple plants?
• How do resource constraints affect project selection?
• How do mandatory projects affect the portfolio?
• How do project dependencies affect the project mix?
• How should a multi-year CAPEX portfolio be structured?

Once the decision-making model is set up, changes to parameters can be calculated as new scenarios and compared with one another.

This fundamentally changes the CAPEX discussion:

Don’t defend every project individually.

Don’t just discuss rankings.

Don’t simply extrapolate budgets based on historical data.

Instead, calculate the entire portfolio.

Too many projects. Too little budget.

Don’t just prioritize. Optimize the portfolio.

Frequently Asked Questions

What should you do if there are too many projects and not enough budget?

If not all projects can be funded, the projects should first be evaluated based on relevant financial and strategic criteria. Then, a mathematical portfolio optimization can determine which combination of projects best meets the defined target within the available budget and other constraints.

How can you prioritize CAPEX projects?

CAPEX projects can be evaluated based on NPV, ROI, strategic relevance, risk, compliance, growth, and other criteria. For the final portfolio selection, you should also consider which combination of projects generates the highest defined total value within the budget.

How do you prioritize projects with a limited budget?

When the budget is limited, the budget cap should be a direct component of the decision-making model. This not only generates a ranking but also calculates a specific combination of projects within the available budget.

How do you optimally allocate CAPEX across projects?

CAPEX can be allocated to projects using a portfolio model that simultaneously takes into account investment amount, expected value, and relevant constraints.

How do you allocate CAPEX across business units?

Projects from different business units can be considered and optimized together. Minimum budgets, maximum budgets, or other governance rules for individual business units can be taken into account as constraints.

How can you reduce CAPEX without unnecessarily sacrificing ROI?

Instead of cutting all areas proportionally, the portfolio can be re-optimized within the reduced budget. This allows you to identify the combination of projects that preserves as much of the defined economic value as possible while minimizing CAPEX.

How do you maximize NPV with a fixed budget?

NPV can be defined as the objective function of a portfolio optimization model. The model then calculates an acceptable combination of projects whose total investment does not exceed the budget and whose total NPV is maximized.

How do you maximize ROI with a fixed CAPEX?

First, you must define how ROI or economic portfolio value is measured. Then, you can calculate the project combination that best meets this target within the fixed CAPEX and other constraints.

How do you find the best combination of projects?

The best project combination is determined relative to the defined objective function and the applicable constraints. Mathematical optimization examines the feasible decision space and calculates a corresponding portfolio configuration.

How do you compare investment projects?

Investment projects can be compared based on financial, strategic, operational, and risk-related criteria. When making portfolio decisions, it is also important to examine how the projects interact within the existing budget and resource constraints.

How do you optimize an investment portfolio under constraints?

Projects, the objective function, and constraints are modeled in a mathematical model. A feasible portfolio configuration is then calculated that best meets the defined objective.

How do you allocate limited resources to projects?

Resources such as CAPEX, engineering hours, IT capacity, or FTEs can be modeled as joint constraints. This ensures that only project portfolios that are feasible within the actually available resources are considered.

Which CAPEX projects should be eliminated?

Instead of eliminating projects in isolation, the entire portfolio can be recalculated under the new budget. The comparison then shows which projects are eliminated and what portfolio value remains.

How do you create a 5-year CAPEX plan?

A 5-year CAPEX plan should take into account annual budgets, project durations, resources, project dependencies, and mandatory projects. Multi-year optimization can also determine which projects should be funded and launched in which periods.

How do you model project dependencies in CAPEX planning?

Project dependencies can be modeled as mathematical conditions. For example, it can be specified that Project B may only be selected if Project A is also funded.

How are mandatory projects accounted for in portfolio optimization?

Mandatory projects are defined as fixed selection criteria. As a result, they are an integral part of every permissible portfolio configuration.

How do you optimize CAPEX across multiple plants?

Projects from different plants can be considered within a single portfolio. Plant-specific minimum and maximum budgets, resources, and mandatory investments can then be added as constraints.

How do you optimize CAPEX across multiple business units?

All relevant projects can initially be considered together. Rules for individual business units are then modeled as constraints. This allows for company-wide optimization of capital allocation without ignoring organizational requirements.

Why isn’t a project ranking always sufficient when the budget is limited?

A ranking evaluates individual projects but does not automatically consider all possible project combinations. Different project sizes and constraints can result in several lower-ranked projects collectively generating a higher portfolio value than a single higher-ranked project.

How many possible portfolios are there with 100 projects?

With 100 independent binary project decisions, there are theoretically up to 2^100 ≈ 1.27 × 10^30 possible combinations. Constraints reduce the permissible decision space but do not alter the fundamental combinatorial structure of the problem.

What is the difference between project prioritization and portfolio optimization?

Project prioritization evaluates or ranks individual projects. Portfolio optimization calculates a combination of projects under a defined objective function and shared budget, resource, and other constraints.

Can mathematical optimization replace management decisions?

No. Management defines objectives, strategic criteria, budgets, and constraints and makes the final decision. Mathematical optimization makes the consequences of these specifications calculable and enables the systematic comparison of alternative portfolios.

What is the central question of CAPEX optimization?

Which combination of our projects generates the highest value according to our defined objective function, given the available budget, existing resources, project dependencies, and our strategic guidelines?