Pre-Capital Planning: Site Selection for Industrial Projects

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Pre-capital planning is an essential piece in the industrial site selection puzzle. This process involves evaluating your business’ objectives and strategizing the development process to ensure success in financial planning.

Four Key Steps to Success

According to expert in mechanical engineering and operations Stephanie Dentz, there are four key steps to follow to “support business objectives faster and more holistically, giving the client more confidence the project to meet – and exceed – all expectations.”

1. Goal-Setting

• Well-defined goals help organizations understand where and how to invest capital project dollars to produce optimal results: increased revenues and reduced costs

1. Encapsulate Benefits

• Faster alignment with people in key roles throughout the organization is critical, allowing clients to streamline goals and personnel before they start spending money – or even plan to spend that money.

1. Execution Potentials

• Demonstrating a thorough understanding of the need to rapidly execute the right projects leads to the best ROI for each type of project.

1. Investment Competence

• By taking the time to properly vet a project, clients gain the added benefit of knowing their project portfolio is strong and financially sound.

Rates of Return

Criteria for site selection will be based on the individual business’ objectives. According to Site Selection and Economic Development Leader for Burns & McDonnell Courtney Dunbar, specific criteria will almost always begin with cost.

“Industries such as food processing, for example, have high financial hurdles for any capital investment, usually in the neighborhood of a 20 percent internal rate of return (IRR) on a payback timeline that can be as short as three years or even sooner,” writes Dunbar.

Factors that can directly impact IRR include location and proximity to markets and supply chains, energy costs, and the conditions of roads, sewers, and high-quality water supplies. Dunbar says that despite these factors, total lifecycle costs should be considered when choosing a site.

“Low upfront development costs often are offset by high long-term expenses,” says Dunbar. She continues, “Similarly, locations with low utility rates may also present issues with power quality and reliability, resulting in the need to construct backup generation on site.”

Additionally, providing as much detail as possible in the site assessment is the pre-cursor for the success of cost-savings assessments. Details such as maintenance expenses, depreciation rates, energy cost fluctuations, and more can help provide a clearer view of the project’s financial needs.

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