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University Information Technology Services
Capital Planning II
UITS All Staff Conference
11/2/2016
M. Mundrane
Capital Budget and Planning
University Information Technology Services
Q: Why Should I care about budgets?
A: Any individual empowered with financial
decision rights should have suitable associated
financial acumen.
Authority
Ability
And ….. Internal audit is still making me give this talk*
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Accounting Background
University Information Technology Services
Assets = Liabilities + Equity
House = Loan+ Equity
200,000= 120,000+ 80,000
Everybody knows exactly what this means!
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Capital Planning
University Information Technology Services
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•
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Not labor
Durable assets
Lifespan exceeds financial boundaries
Assumed ongoing activity
Size or granularity works against you
Cannot be operationalized
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Useful Life
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Useful life is the estimated lifespan of a
depreciable fixed asset, during which it
can be expected to contribute to
operations.
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Remaining Value (Salvage)
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Salvage is the value, calculated off
baseline, of the useful life of a
depreciable fixed asset that has not
been lost due to the expenditure of its
usable lifespan.
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Remaining Value (Salvage)
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( y  b)
V ( y )  V (b)  max 0,1 
n
Where
V – value
y – year
b – baseline
n – lifespan
* all in years
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Depreciation
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Depreciation is the systematic reduction in
the recorded value of a fixed asset over its
usable lifespan.
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Depreciation
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D( y )  V (b)  V ( y )
Where
D – depreciation
y – year
V – value
b – baseline
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Liability
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A liability is an obligation that is reported
on a balance sheet. It represents an
immediate reduction of equity.
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Liability
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L( y )  D( y )  C
Where
L – liability
y – year
D – depreciation
C – cost to deploy
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End of Life Risk
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An end of life risk is a liability that may or
may not be reported on a balance sheet. It
represents an effective reduction of
financial position even though its
resolution may remain incomplete for an
indeterminate period of time.
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End of Life Risk
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R( y )  not (V ( y ))  (V (b)  C )
Where
R – risk
y – year
V – original value
b – baseline
D – depreciation
C – cost to deploy
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Current Year
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Remaining Value (Salvage)
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Depreciation
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Liability
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Remaining Value (Salvage)
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Remaining value
tracked on a per year
basis.
V  V ( y)
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Depreciation
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Depreciation tracked
on an annual basis is
still the difference
between baseline
value and salvage
value.
D  V ( y )  V (b)
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End of Life
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End of life is tracked
as the depreciated
value when salvage
has dropped to zero
plus associated cost
to deploy.
R( y )  not (V )  ( D  C )
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Capital Status
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Capital Risk
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Normalized Capital Status
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Normalized Capital Risk
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Capital Plan
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• Retain
– Original value (baseline)
– Cost to deploy (immediate liability)
• Track
– Salvage (remaining value)
– Depreciation (loss in value)
• Report
– Capital status (where are we now)
– Capital risk (end of life)
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Thank you
University Information Technology Services
Questions?
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