There are multiple reasons why CapEx investment in physical assets, almost without exception, fail to perform or pay back as projected. One is that complexity is a killer – by simplifying design, and reducing your CapEx by 20% you could take 40% out of the lifetime OpEx – we regularly see over-design (or missed opportunity to simplify) leading to lifetime loss of value to the tune of 25 to 50% of the total cost of ownership.
Complex systems drive greater levels of maintenance – diagnosis, repair and replacement become more difficult and specialized. What starts as overspend in CapEx due to complexity leads to disproportionately greater increases in OpEx. Complexity is a killer and it creeps in because of failings in current, established ways of working.
Sadly, as design gets into the detail of a project, the process allows over-compensation for perceived risk to go unquestioned. Human nature leads us to err on the side of caution and not build a plant, or any system within it, that will be ‘outgrown’ in its lifetime. There is the natural tendency to over-design to mitigate against future failure or the risk of being under capacity.
A primary driver is uncertainty about future demand and conditions, or uncertainty about how future forecasts have been settled upon. Either way, seemingly minor decisions are taken to ‘protect’ the investment without the full context of the project and the consequences being apparent.
This over compensation particularly arises when decisions and assumptions are left in the hands of individuals or specialist teams, who are naturally silo’d. In isolation it feels right and there’s a logic to it – as building extra capacity after the event can be prohibitively expensive – which is why it happens so often. In practice it over complicates systems, adds CapEx and pushes up OpEx even more.
The problem is that the behaviour generates layers of excess capacity and unplanned system redundancy – risk is mitigated iteratively by each department or for each system – all of which impacts on cost and efficiency.
A simple example is of project teams (e.g. engineering design team, architectural design team, manufacturing design team, the engineering contractor) interpreting the specification, due to lack of detail, and meeting the reliability targets required of the overall project for individual systems within their remit. They therefore design in complexity and redundancy beyond the required performance of the project.
Even when communication between teams is good and the requirements are interpreted appropriately, in-house teams and industry experts tend to follow historical norms and work within unwritten perceived constraints – ‘this is how we always work / have always done it – we know it works’. This viewpoint limits innovation and prevents teams from even attempting to simplify.
Simplification upfront that reduces your CapEx commitment – by mitigating the problems highlighted above – has a multiplier beneficial effect on lifetime OpEx. This is mainly driven by risk of failure and maintenance /replacement cost. Both are driven by not only number of assets but by the complexity of the system those assets are in.
Simplifying projects and the designs they deliver to only meet and not exceed requirements (albeit that those requirements have been stressed tested and balanced against the likelihood of them being wrong) produces numerous benefits, not least, cost reduction, timeline compression, reduced operating risk and increased maintainability. By challenging existing paradigms without disenfranchising the experts within your team, external insight and experience have been proven to reveal dramatically reduced CapEx and OpEx.
