Hybrid Capital Spending
The previous two (2) sections covered the concepts of Global and Linked Capital Spending. Within those sections, each spend type was assessed in isolation from the other. In practice, however, it is possible (and common) to have both Global and Linked Capital Spend events ascribed to a Budget Bucket. Consider the following:
Consider a Road Resealing program - for simplicity, the program only pertains to two (2) road segments. One segment is a small back lane with next to zero traffic. The other road segment is a major arterial road with heavy traffic. The resealing contractor was able to cover the cost of traffic control internally for the back lane, but for the arterial road, they requested that you hire a traffic control company to manage the traffic on their behalf.
This resealing program has two (2) Capital Spends:
- A Global Capital Spend ($65,000) for the resealing contractor’s costs (i.e. the cost of resealing the roads).
- A Linked Capital Spend ($12,000) for the traffic control costs, applicable to the major arterial road only.
In this example, the Global Capital Spend would be allocated to both road segments, while the Linked Capital Spend would only be allocated to the major arterial road. The system will automatically calculate the share of each spend for each item, and the total Capital Spend for each Bucket Item will be the sum of their Global and Linked Capital Spend Shares.
So, first to calculate the Global Capital Spend share for each item. To do this, we simply apply the formula for Global Capital spend to each item. This is shown in the table below:
| Bucket Item | Cost Units Share | Total Global Spend | Share of Spend |
|---|---|---|---|
| Component A | 2000 / 6000 = 33% | $65,000 | $21,450 |
| Component B | 3000 / 6000 = 50% | $65,000 | $43,550 |
Next, we allocate the Linked Capital Spend to the major arterial road only. As the spend pertains to the one segment only, the share of cost units for this item is 100%. The breakdown per item is therefore:
| Bucket Item | Cost Units Share | Total Linked Spend | Share of Spend |
|---|---|---|---|
| Component A | 0 / 3000 = 0% | $12,000 | $0 |
| Component B | 3000 / 3000 = 100% | $12,000 | $12,000 |
Finally, we can combine the two (2) Capital Spend shares to get the total Capital Spend for each item. This is shown in the table below:
| Bucket Item | Global Capital Spend | Linked Capital Spend | Total Capital Spend |
|---|---|---|---|
| Component A | $21,450 | $0 | $21,450 |
| Component B | $43,550 | $12,000 | $55,550 |
Once again, the system does all of these calculations on your behalf. As an end user, you need only understand the principles behind it, and how to set up the Global and/or Linked Capital Spends correctly.