CAPEX & OPEX
The return on investment can be difficult to forecast. The models for depreciating assets and building in inflationary discount rates, sunk costs, hurdle rates, derivatives or any other financial consideration made in the context of an investment can be daunting in itself. what's more, accurately forecasting the potential benefits in operations greatly depends on how well cost performance is understood and captured in the first place.
When forecasting the benefits of an investment, usually the catalyst for the investment is either cost reduction or increased sales volumes.
When investing in more sales, the commercial margin becomes a substantial part of the payback calculations. Forecasting on sales margin can be difficult as the market continuously moves, however, a proportion of the margin will have to be included in the forecasted benefits. If the commercial model protects the business from inflation, then a larger part to the commercial benefit can be included. Moreover, increased sales volumes increases the production tonnage which dilutes overheads - so even when the project targets additional commercial volume, there should be cost elements improving as well as an increase in revenue.
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Projects targeting cost reduction, e.g., labour saving or yield improvements, can be taken directly from the standards, if the master data is kept clean and up to date. At times, however, it can be difficult to establish an overview of all the peripheral costs linked to the improvement project.
There may be other situations where compliance dictates an expenditure e.g., animal or staff welfare, food safety, health & safety or environmental improvements are required and the financial benefits of the investment are less tangible and therefore forecasting the return on capital is more difficult.
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Whatever the case may be, we can help you calculate the benefits, write up business cases, design the flow and guide you in choice of equipment and supplier.