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Hey folks, Phil Zito here and welcome back. In this post, we're going to be talking about capital planning and answering the question, “Is capital planning the ultimate path to sales success?” I mean, that's a pretty leading question. So, you could probably guess to where I'm going to lead this conversation.

For those of you who don't know what capital planning is, capital planning is the act in which a company or organization plans their capital projects. Now you may be wondering, what is a capital project or a capital budget. Well, there's no necessarily defining factor at which something switches from an operational budget to a capital budget. There's no monetary limit. For some companies, it's large, and for others, it's small.

What I tend to see, in regards to capital versus operational budgets and capital versus operational projects, are that operational budgets and operational tasks reoccur pretty much every year. So, our facility staffing, our maintenance costs, etc. Whereas capital costs tend to be one-time events that don't tend to reoccur every year.

So, if you're trying to sell analytics, you're selling to an operational budget, not the capital budget. That is, by the way, one of the mistakes people make when they try to sell things like analytics. They try to sell to people who hold capital budgets, but do not hold operational budgets, and then they wonder why it never gets approved.

Let's talk about these capital budgets and capital projects. So, capital budgets and capital projects come about as part of capital planning. Capital planning is typically part of a 5-to-10-year capital plan. One of my favorite places to look at capital planning and see really good examples of it, are the universities. If you ever want to understand how capital planning happens, if you want to potentially provide one of your customers with a capital planning template, one of the best things you can do is you go to Google search and type in site:.edu capital planning, and you will see a bunch of things pop up.

And by the way, if you don't know how to use Google Primitives, or Google Dorks as they're called, then you need to learn that because if you're in sales, and you're doing any form of research on an opportunity, you can use this to search for information about the project. I would use this so I would know the site, I would know the name of the project, and these primitives can help really narrow down the Google results, which then can give you some really interesting information.

But as I type in site:.edu capital planning, for me, the first thing that pops up is Capital Plan Templates, University of Wisconsin System. If I click on that, I'm going to see a whole web page dedicated to capital planning, and it gives you a really good snapshot of how capital planning goes. Basically what happens is, there is a capital planning committee typically, and this committee will accept submissions in the capital planning process, and these submissions will be evaluated. Then based on several factors, different projects will be approved or denied and will be added to the capital plan and prioritized accordingly.

So, if you ever want to figure out how to get your BAS project kind of ramped up and really into a budget that maybe it wasn't in before, the capital planning process is usually part of that. This stretches across universities and K-12, with all of the federal grant money they're getting right now. Public sector, if they get bond money, local, public companies, as well as private companies, they all typically have a capital planning process.

Now, if you've followed our blogs for any amount of time, you know that my philosophy on selling, especially if you're new, is called the Circle Approach. Basically, you draw a circle around a metroplex. So, for example like Houston, Dallas, Los Angeles. Usually, within 10 to 20 miles of the epicenter of that circle is going to be the point at which major OEMs and system integrators stop pursuing customers. That is a good beachhead, to establish a base sales operation for a new sales rep or a new systems integrator. So, what you’ll do is go about establishing that beachhead, and one of the things you'll realize as you start to serve customers in the suburbs and rural communities, is their capital planning processes are weak, to limited, to non-existent.

So, your ability to literally go to the University of Wisconsin system, copy their templates, change them to fit your needs, and then deploy those templates to your customers, you are essentially providing them a capital planning process that they may not have had before. And when you are able to provide, let's focus in on K-12, a capital plan to the school board and to the superintendent, you are more likely to get selected and get your project approved, and be ahead of the game.

Now, unfortunately, with most public work, you're still going to have to go through the bid process. But if you're the one setting the standards for the specifications for the capital projects, you can definitely set them in your favor, and that can be perfectly legal.

Alright, a capital plan is going to start with several things. So, if you go to this site, and it's one of my favorite sites to refer to whenever I'm trying to explain capital plans, whenever I'm trying to execute capital plans, because it has so many deliverables that you can use.

If you go to the top, you’ll see several different links you can search, and if you go to Capital Budget, it’ll bring you to a page where you'll see a Project Priority Sequence Summary and Chart. So, that's typically where projects that have gone through the capital project request process, have then been budgeted, and have been approved by the Capital Planning Committee. They then are going to go into this Priority Sequence Summary Chart, and will then start to get executed.

You're going to see that the prioritization of projects is going to move up and down, based on whatever key metrics are trying to be achieved by your customers. So, if your customers focus on IAQ, then projects with IAQ outcomes will most likely be a higher priority. If they're focused on energy, or carbon reduction, or tenant engagement, tenant retention, etc., that's very important. We talked about this in multiple posts now about really understanding the key metrics that drive business success for your customers. When you understand those key metrics, and how they drive business success, then you're going to understand by which measure, the projects that you input into a capital plan, are prioritized and accepted.

Additionally, the project budgeting worksheets. A couple posts back, we talked about working with utilities, retro-commissioning, utility incentives. I just mentioned to you how in K-12, there's still a ton of investment money from the government that you can utilize. So, understanding these monetary sources, that can be seen as a way to offset your cost in your budget worksheets. So, if you're able to do that, you can actually bump up your project as well. Find those funding sources.

This is something you'll see a lot of the large OEMs do either through an ESCO, an Energy Savings Company, or through some sort of P3, Public Private Partnership, approach, where they find private investment, to basically provide a funding vehicle for the project execution.

So, if you were to scroll down past the Submittal Guide, you'll start to see where they call out, Project Solutions, Project Priority and Sequence documents, Template documents, Project Budget Worksheet documents, and they have them in all sorts of forms.

So, back when I did a lot of systems engineering, integration engineering, I was a big advocate of, “Don't reinvent the wheel,” because most likely, what you're trying to do, is out there. From a capital planning perspective, you can see everything you would be trying to help your customer do, is out here.

So, we have this project committee, they're going to evaluate a submission. That submission is going to come through in the form of a Capital Project Request. If that request is approved, then they will move that request into the Priority and Sequence Chart. Now attached to this project request, if we were to open the Guide or Sample document, you would see that there's all sorts of information:

  • Project type
  • Priority
  • Project Intent
  • Project Description and Scope

So, you'll have that information, you'll list out some important details, give an analysis of the project justification, alternatives, and project budget, and then you'll go into the funding. You'll see that in this Funding Source Checklist, this Project Schedule, Fee and Rate Impact(s), etc. You're going to see a lot of information that's going to be requested.

So, you can imagine. Put yourself in the schools of like “Empty Swamp Independent School District” in the middle of nowhere. They're sitting there trying to plan out their projects, they probably don't have all of these resources, and if you're able to bring this kind of resource to them, you're then able to guide the conversation, potentially work with the local utility to get some rebates, potentially help them to get some bond funding, and you literally are going to create your own work.

Now, this is not something I would use for, a $50,000 project, $100,000 project. I would just go owner direct. I would sell to them via how I told you all to do so in a previous post on owner-direct selling. But if you're looking for $500,000+ projects, if you're looking for million-dollar projects, big capital projects that you want to execute, this is a way to get those created. Oftentimes, these projects are planned several years in advance and if you're able to be part of the project team, if you are working on public work as a potential consultant or design partner, just be cognizant of the contracting laws and how that may preclude you from actually executing the work. It's not always the case, but it sometimes is, and you would hate to put in all this work and then not be able to execute it.

That being said, I've seen plenty of times when you're able to put in this kind of work, either through creative contracts or through creative procurement, they're able to sole source you. So be aware of that and definitely use that to your advantage.

Alright, so let's get a little tactical on how we would deploy capital planning to a customer, now that you kind of understand. So, how would we actually deploy this? Well, we would first target a customer who would be a good fit for this. A good fit customer is going to be one with aged infrastructure, or rapidly expanding tenants, maybe like in healthcare. So, you're in a demographic and a geography that is expanding.

For example, I live in Prescott, Arizona. There are like no medical services here, and there's no housing here. So, we have a demand that is much greater than the capacity. That's what you're looking for, a vertical market in which demand is greater than capacity for some reason, or infrastructure is not able to meet a critical mission.

So, for example, in the educational space, you're at ABC University, and this university's student housing is absolutely crap, right? It's crap housing. The air conditioning doesn't work, the pipes are busted, it's almost like slum housing, basically. But this is a super prestigious university. Parents pay a lot of money for their kids to go there. One of the parents visits and is like, “Holy crap, my kid is going to school in a dump.” There's then a big stink made about it. Well, guess what? Now it just became a major priority when donors and people start to get upset. So, there's going to be a student housing capital project.

If you're able to pay attention to vertical markets and customers, and understand pain points, for instance, K-12. Maybe you're in the Dakotas, when the big oil boom hit, and all these people are working, and they're bringing their families out there. The schools had to rapidly expand. They had to build new schools, because they had all these kids, and they had to use trailers to keep up with the influx of students So, guess what? What would be a good capital project and probably a quick hit capital project? A school expansion, right? Building new schools. If you're able to help people do capital planning there, you're able to meet a need.

So, I hope the wheels are turning, you're starting to look at your geography and seeing, we have a shortage of this, or this is degrading, or this is an issue. Based on that, then you can go to those people and help them either by stepping into their capital planning process and understanding, based on what we've discussed so far, the terms:

  • Are they in project requirements?
  • Are they in budgeting?
  • Are they in just needs analysis?

Where are they in their capital planning project, so that you can step into that? Additionally, if they don't have a capital planning process, then you can also step into that as well. You can start working with them on developing and deploying the capital planning projects.

So, my hope is that by hearing that you are doing phase one, you're starting to make a list of customers you could potentially bring this to.

Alright, so phase two. So, now that we've figured out who we're going to go to, we need to figure out where they're at in the capital planning process. Do they have a capital planning program, or not? If they don't, then you know that they're probably nowhere in the process.

In this case, we have to start doing our basic sales questions:

  • Do they have funding?
  • Do they have an interest in a process?
  • Who makes the decisions?
  • What is the process of setting this up?
  • What is my opportunity cost to potentially try to deploy this to a customer base?

If I have, you know, 50 customers who want service work, versus three customers who want potentially a capital plan, but they don't even have a capital planning process, I may lean towards the service work. But if there's a lot of potential growth in a community, and people need to plan that growth, then I'm going to be steering myself towards those from an opportunity cost perspective.

Now, if they do have a capital planning process, then you need to understand where they are in this capital planning process. How do you determine that? Well, if it's public sector, then it's usually disclosed, and they will have terms like, “We are in this phase of the capital planning process.” This is usually, Budgeting Phase, Project Submittal Phase, Project Analysis Phase, etc. So, understanding what phase they're in, and realizing that people can be in multiple phases at the same time.

So, for maybe their high school campus, a school district may be simply in the Budgeting Phase, but for their elementary school, they may actually be in Project Prioritization, or Project Execution Phase, from a capital planning perspective. So, understanding what phase they're in.

Alright, and then step three, and this is going to be our final step, we're going to engage. If they do not have a process, and we've evaluated the opportunity cost, and we've determined that it makes sense for us to engage, then we're going to engage and help them build a capital planning process.

How do you determine that? Well, I typically look at, if I were to hit the lowest likely close on this organization, based on their historical project expenditures, would that be worth it to me? Historically, if they've spent somewhere between $1 million to $20 million on capital projects, then I'm going to figure, if I were only to hit $1 million, would that be worth it to my business? If you're like, “No, that may not be worth it to my business because I have all this plan and spec and owner direct work,” or you may be like, “Yeah, that would be worth it to my business, because I'm just getting started, and I have some plan and spec work, but this is something I can work on in the long term and do part time.” So that is something I would evaluate.

Additionally, once we've evaluated whether we want to engage there, we have to engage, we have to step into it. That may be like getting them funding from utilities, bond funding, tax funding. That may be helping them review project submittals, that may be actually submitting some potential designs and suggestions. My only caution to you is, be careful in what you give away for free without a project development agreement. Ideally, you would have a project development agreement anytime you engage with a customer. A project development agreement basically says, “If you use us, hen you don’t pay for anything, but if you choose not to use us, then you pay for our engineering costs.” So that would be a way to reduce my cost of sales, as well as to make sure you get some revenue from your efforts.

Once you've done all this, then it's just basic salesmanship. You're just going to work through selling, understanding customer pains, building those pains into actionable desires that the customer is then going to give in and decide to take action on it. Then you're going to address any blockers, any influencers, technical and economic decision makers, all your basic sales 101 stuff.

Alright, folks, I hope you enjoyed this post. I hope it gave you some insight into capital planning. I firmly believe that it is a great way to make money and solidify yourself in a marketplace. It's not the only way. There are definitely many other strategies, but this is definitely one of them that I would use if I were trying to start a controls business.

Don’t forget to ask any questions using the form at the bottom of the page. Thanks a ton, and take care.

Phil Zito

Written by Phil Zito

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