Capital allocation: competing for internal capital

Capital allocation: competing for internal capital

How can telecom companies reliably determine the benefits of different capital investment options?

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When considering the benefits of different project options, companies have to compare new build against maintenance of existing assets, retiring old technology versus acquiring new (and possibly costly) technology, and whether to form alliances or acquire other players. 

According to the respondents to KPMG’s 2015 global survey:

  • 47% allocate capital based on financial returns, after accounting for risk and synergies
  • Head Office has final say on prioritizing, delaying, phasing or other actions to manage investments within the capital envelope
  • Companies balance capital allocation between strategic expansion, strategic replacement and maintenance investments
  • 50% prioritize strategic investments with the best financial and other strategically important qualitative returns.

Maximizing returns

For half of respondents, capital is prioritized and allocated based on the expected financial returns of each investment opportunity, after accounting for risks and synergies. However, 36 percent prioritize essential capital first, and then prioritize based on alignment of the capital requests to strategic priorities, which deliver positive risk-adjusted financial returns, as well as other strategically important qualitative returns.

Which statement best describes the alignment of your capital plan to the overall corporate strategy?

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