How to tariff-proof your Capex
portfolio: Scenario analysis,
zero-based budgeting, and more
They’re announced, walked back, revised, delayed, and reintroduced—sometimes all within the same week. This is the reality of the current tariff environment, and everyone’s scrambling to position themselves accordingly.
While procurement teams might be able to adjust their sourcing relatively quickly, capital planners work on a different timeline. You can’t swap out project inputs overnight. You definitely can’t relocate a plant in a quarter.
So, what can be done?
In lieu of a crystal ball, the best approach may very well be to stay nimble. No one action can tariff-proof your portfolio entirely, but a blend of strategies can inject some invaluable agility and flexibility into your capital planning process, allowing your company to better absorb volatility while protecting return on invested capital (ROIC).
Three tariff-proofing pillars
1. Simulate a range of possible scenarios
Capital project planning usually entails projecting costs out over many months or years, but tariff policy can whipsaw in a matter of days. How do you square this circle?
Not by reacting to tariff announcements as they happen—that’s a recipe for chaos and confusion. Instead, top-tier capital planners simulate a range of possible scenarios ahead of time to assess how their Capex portfolio might respond to different policies.
For example:
If a 10% tariff increases material costs, does the project still meet ROI targets?
If a supplier’s imports suddenly face new duties, could we find a local/other alternative?
How would cash flow be impacted if unexpected tariffs hit mid-project?
Running simulations like these helps you understand where your vulnerabilities lie and what your options might look like. KPMG’s trade advisors recommend calculating the “worst-case” exposure—for instance, if a 25% tariff were applied to all imports from a particular country—to gauge the maximum financial risk your projects and business could face.
Plan for what you can
If and when tariff policy takes an unexpected turn, scenario planning ensures you have playbooks on the shelf to respond accordingly. As The Hackett Group points out, tariffs can bring “a good deal of volatility and uncertainty, requiring companies to develop robust…scenario-planning capabilities to manage these potential risks effectively.”
Semiconductor manufacturer Onsemi is a prime example of how to do this right. Years before tariffs were even on the table, they were preparing for the possibility by modeling scenarios where certain exemptions disappeared. That foresight paid off. When tariffs eventually did come to pass, they were “at least a few steps forward than…those scrambling in crisis, because [they] discussed it” ahead of time.
Build contingency plans in advance
Once you’ve mapped out a range of possible scenarios, the next step is to build contingency plans around them. That might mean lining up backup suppliers, phasing project timelines differently, having a plan for pausing certain projects and reallocating capital to others, looking at alternative sourcing options, etc.
The idea here isn’t to try to predict the future. It’s to make sure you’re not blindsided by it.
2. Embrace “tariff engineering” for capital projects
Another way to tariff-proof your Capex portfolio is through “tariff engineering”— that is, strategically structuring projects to minimize tariff costs. Procurement teams are well-versed in this exercise. Essentially, it boils down to tweaking product specs or swapping out materials to get around tariff penalties.
While the mechanics for Capex projects are different than for inventory, the end goal is the same: reduce exposure to cost increases wherever possible.
Optimize project inputs
Start with the basics. What materials or equipment are on the spec sheet? If any of them are at risk of being tariffed, it’s worth exploring ways to blunt the impact.
One way to do this is to preemptively stockpile critical materials. Costco, for instance, announced that it would pull forward inventory purchases to get products in before certain tariffs take effect. You can do the same for critical project components.
Beyond timing, think about alternatives. Costco CFO Gary Millerchip also mentioned on a recent earnings call that the company would be exploring alternative sourcing to mitigate cost increases. Could you switch to a different material or supplier without compromising the integrity of the project? Maybe a domestic vendor can offer a close substitute. It might take a little reengineering, but if it helps you sidestep a double-digit cost hike, it’s worth considering.
Reassess project priorities
Tariff engineering isn’t only about rethinking your materials—it also means periodically re-ranking your project priorities based on the changing environment – including tariffs. If a key input suddenly becomes 15% more expensive, does that project still meet your ROI thresholds? If not, where else could that capital be deployed?
In an uncertain policy environment, capital planning needs to be more fluid. If the best course of action is deferring tariff-sensitive projects and redirecting those funds to initiatives with less exposure, you’ll want to do that ASAP—not when the next budget cycle rolls around. This is a critical benefit of having an enterprise Capex software solution.
The most effective teams leverage software tools to re-prioritze projects as assumptions change. This way, your Capex portfolio becomes a living, breathing entity that can adapt to the climate you’re currently in, not the one you planned for last year.
3. Implement zero-based budgeting to better absorb tariff volatility
Most capital plans start with last year’s budget as a baseline, and make minimal tweaks as necessary. But when tariffs throw your assumptions out the window, this iterative approach falls apart. Zero-based budgeting (ZBB) provides the agility required to adapt to drastic policy changes as they happen. Under a zero-based approach, you’re not locked into projects that were approved under a different policy regime. If conditions have changed, your allocations can, too.
Let’s say you planned to buy steel from Country X for a big project. Import fees kick in, and the price of that steel spikes 25%. Suddenly, that project’s expected ROI is nowhere close to an acceptable level. You’re unable to find alternative sourcing options in time, and need to press pause on this project.
In a ZBB framework, you could quickly reallocate those funds to a different initiative that makes more sense given the state of play—say, one that relies on domestic materials. This prevents capital from being locked up in projects that made sense under yesterday’s policies, but are unviable in today’s.
Of course, shifting to a ZBB approach requires a different mindset. Finance teams need to stay plugged into real-time cost figures and work closely with business leaders to reassess priorities as conditions change. But this effort is well worth it, and far better than the alternative of pouring money into projects that time has passed by and no longer clear your ROI hurdles.
Agility wins in an ever changing world
Tariff uncertainty doesn’t appear to be going away any time soon. Pushing projects off until we return to a more stable environment is a losing strategy, and an invitation for competitors to race ahead. While no single move can insulate your Capex portfolio from tariffs, building agility into your process, having a “trim the fat, not the muscle” philosophy and discipline, and a collaborative decision making structure can put you in the best possible position to adjust and adapt.
But putting these pillars in place requires more than good intentions. For more informed decision making, consider an enterprise Capex software solution to help:
- Simulate a range of possible scenarios
- Stack-rank projects as conditions change so you can see the implications of your decisions in real time
- Implement ZBB without upending your budgeting process
There’s only one such purpose-built solution that does that: Finario. And unlike the uncertainty of tariffs and their implications, the verdict on its impact on enterprise performance is proven: as one customer put it, it’s “a game changer.”
In short, where tariffs go from here is out of your control. How prepared you are for the inevitable twists and turns is up to you.