Challenges in Capital Management

Recent poll indicates that economic uncertainty and capital deployment are companies' primary challenges in capital management.

In a webcast titled “Capital Efficiency in a Volatile Market: Stop Burning Capital,” Deloitte asked several polling questions to identify the main working capital challenges in the companies of the webcast’s more than 1,500 participants.

When asked how they expect their company’s deployment of cash in the second half of 2013 to compare with the first half of the year, more said they expect cash deployment to accelerate (21.8 percent) than decelerate (15.5 percent). However, the largest proportion of respondents (32 percent) said they don’t know what cash deployment will look like at the end of the year. (See Figure 1.) Not only that, but more answered “don’t know” in response to this question than in response to the survey’s other questions, which were oriented more to the present than to the future.

Companies’ biggest challenges within the capital budgeting process stem from difficulties around optimally distributing resources among different projects within the company. More than a quarter of respondents to the Deloitte study cited “capital constraints” as the biggest challenge to deploying capital internally.

“It’s a demand and supply balance within most organizations,” Alsdorf says. “Capital deployment is most effective when the company has a good governance structure, when it frames allocation decisions before doing a lot of analysis so decision-makers don’t get too biased, and when it builds a framework for comparing the different types of projects it’s managing. Even when a company has large cash balances, it’s generally not going to want to spend more than the industry norm—2 percent, 5 percent, 6 percent of revenue—on capital budgeting. So the business units end up jockeying to win funding for their projects.”

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