Physical asset investments underperform massively over their lives – we see it time and again and have coined the phrase CapWaste® in response. We estimate that CapWaste® typically ranges between 20-50% of total cost of ownership.
Whilst your investment may look good on paper, unless you are operating in an entirely simplistic and predictable environment, the chance of the projections it’s based on playing out and therefore it paying back are close to nil!
In a simplistic environment of upfront cost against future financial benefit, what to invest in is relatively easy to identify – but, in a real world, business environment, it certainly isn’t.
Future variables are plagued with uncertainty; systems are inter-dependent, and
success is defined by more than just financial performance. Decisions involve a complex array of trade-offs and compromises. Sadly, how decisions are informed and arrived at hasn’t matured in line with this business complexity and are frankly out of date.
Any business driven, physical asset investment aims to hit the ‘sweet spot’ of maximum improvement in capability whilst encumbering the organization with minimum additional cost or other consequential burden (carbon emissions, risk of failure or disruption, etc.). We have identified 4 key reasons why it’s so difficult to find; why CapWaste® exists.
1. Decision criteria remain skewed towards upfront CapEx…
… and ignore the glut of data now available and the insight it offers into the other long term influences of investment success. Influences such as asset performance, on-going OpEx cost, risk / consequence of failure and increasingly, sustainability impact.
This is despite those influences having 10 to 100x the impact over the lifecycle than any benefit from optimizing the initial CapEx.
They can be hard to predict and quantify, but that doesn’t excuse the lack of attention from a consulting and advisory industry who have almost unanimously focused on improvements in project delivery and on CapEx spend control.
2. The business unit ‘investor’ absorbs the risk of future uncertainty in setting their requirements…
… the project team/engineers who have the knowledge to recognize and mitigate it through design certainly don’t.
Requirements become ‘averaged’ to produce a single unifying specification and designers/engineers only consider options to meet that – despite being the holders of the knowledge that could significantly improve returns against the actual, uncertain future requirements and influences.
3. Business leadership and engineering don’t speak the same ‘language’…
… so ambiguity or grey areas result in assumptions being made rather than being resolved through dialogue.
Decisions become an aggregate of averages and assumptions, oversimplified into a ‘yes/no’ set of options.
The request for capital tends to be adversarial, a cycle of request and challenge. Consequently, depending upon where you are in the business cycle, either finance or engineering wins to the detriment of the other, rather than the right long-term solution being identified through dialogue, with appropriate expert contribution and all of the information on the table.
4. Improvements driven by ‘best practice’ processes often miss the woods for the trees…
…overlooking embedded assumptions about structural limitations, risks, standard configurations, etc. that remain baked-in and unchallenged. Their potential for impact on whole life value and investment returns is however significant.
Despite decisions being ‘rigged’ in favour of upfront CapEx; engineers not designing for risk within future projections; ambiguity and assumptions obscuring opportunities; and evolution masking revolution in best practice – CapWaste® is addressable.
Here’s how…
Working closely with our clients and leaving no stone unturned, we use tried and tested methodologies and proprietary technology to simplify the complex landscape of decision making and unlock that wasted 20-50%. Our is a fast, cost-effective way of assessing how big a CapWaste® problem you’ve got buried in your next investment.
