The capital allocation review checklist: the questions a CFO and a board should be able to answer

Capital allocation frameworks are rarely found to be wrong in one decisive way. They drift. The strategy moves and the framework stays where it was written; the balance sheet is rolled forward as a fact rather than presented as a choice; projects funded on a case that no longer holds are never stopped; and nobody reconciles where capital actually went with where the framework said it should go. By the time a board asks whether the framework works, the honest answer is often that no one has checked.

The seven areas below are where a capital allocation framework is most consistently tested — by the board, by a real decision arriving under commercial pressure, and by the record. Each is stated as the questions a chief financial officer and a board should be able to answer. A framework that decides things answers them with specifics: a decision, a number, a name, a date. A framework that only describes answers them with the framework.

The link to strategy#

• Which uses of capital does the strategy require, and which does it merely tolerate — and is that distinction written down?
• When the strategy last changed, what changed in the allocation as a result?
• Can the CFO name an allocation decision this year that would have gone the other way under the previous strategy?
• Does the board see allocation as the strategy in executable form, or as a finance process that follows it?

The framework against the real decisions#

• Where did capital actually go over the last cycle, business by business and project by project?
• Read against where the framework said it should go, what are the divergences, and can each be explained?
• Which allocation decisions were taken outside the planning season, and on what basis were they compared with those taken inside it?
• Is there a single basis of comparison across growth, compliance and technology uses of capital, or are they argued in separate rooms?

Funding, leverage and the balance sheet the board signs#

• Was the funding mix, the leverage and the buffer the institution carries decided this cycle, or inherited from the last one?
• What alternatives to the current balance sheet were presented to the board, and why were they declined?
• How much capital do the buffers absorb, and is that amount treated as an allocation decision with an owner?
• Would the board recognise the balance sheet as a choice it made, or as a fact it was shown?

The kill discipline#

• Name a funded project that was stopped in the last cycle. What were the numbers that stopped it, and who said so?
• For each project currently funded, are the conditions under which it would be stopped written down and dated?
• Is there a project everyone knows should be stopped and no one has stopped — and what is missing: the numbers, the standing, or the forum?
• What did the capital released by the last kill decision do next?

The kill discipline is the most diagnostic area, and the only one that cannot be improved by improving the document.

The narrative#

• Can the CFO tell the allocation story to the board, to investors and to the supervisor as one version of the truth at three altitudes?
• Does the board briefing present allocation as decisions with alternatives, or as a schedule of approved spend?
• When an allocation went wrong, was it carried to the board early and plainly, or discovered?
• Does the audit committee see the estimates behind the allocation cases before it asks for them?

The function’s inputs: close, forecast, decision support#

• Are allocation cases built on the forecast the function actually produces, or on a separate set of numbers prepared for the case?
• How quickly after the close does the institution know whether a funded project is tracking its case?
• Does decision support reach the executives making allocation decisions in time to change them, or only in time to record them?
• Who owns the technology and data behind the forecast — the CFO, or a function that hands it over?

Ownership and follow-through#

• For each material allocation, who is the executive who answers for the return, and which forum will ask?
• When was the last time that forum asked, and what happened as a result?
• Are the owners of last cycle’s allocations still in their seats — and if not, who inherited the accountability?
• Is there a standing record of allocation decisions, their cases and their owners that a new director could read in an afternoon?

How to use it#

Run the questions against one business line or one portfolio before running them across the institution. Most of what is wrong will appear in the first, and it will appear while it is still cheap to fix. Answer with specifics — a decision, a number, a name, a date — and treat any answer that reaches for the framework document as a gap. The kill discipline is the most diagnostic area, and the only one that cannot be improved by improving the document. The pattern across all seven areas is that defects are found by asking for particulars, never by reading the framework. Where the gaps sit in the seat rather than the document, they are the craft worked in The CFO Agenda, the BIZENIUS programme for sitting and incoming chief financial officers.