CapEx
Promoting best practice Capital Expenditure policies,
processes and planning in the infrastructure sectors.
Many infrastructure sectors are facing significant CapEx programs as demand grows, assets wear out and security headroom needs to be restored. Much of this CapEx will occur in regulatory and policy environments that are uncertain and confusing and in funding environments where there is pressure to expense as much work as possible. This site provides a gateway for infrastructure sector participants - owners, operators, advisors, regulators and policy makers - to examine ideas and obtain practical insights to improving their CapEx processes.
CapEx is obviously a huge subject, but hopefully some of the concepts discussed here will help you get things clear in your own mind. This site is an evolving work in progress, so please bear with me. To be notified of website up-dates, pick here. Your response is confidential and your details will not be passed to any other parties.
What is CapEx all about
CapEx is funds that are spent on the non-consumable components of fixed assets, and generally fall into three broad modes depending on the rate of growth and whether this growth is occuring within the network footprint or beyond it...
The following 2x2 matrix depicts the predominate CapEx modes in terms of demand growth and the location of that demand growth...
Each of these three modes of CapEx has distinct characterisitics in terms of revenues, costs, cashflows, balance sheet implications, regulatory asset valuation and service delivery.
How does CapEx fit within an infrastructure business model
CapEx really needs to be at the heart of an infrastructure business, because afterall an infrastructure business is all about effectively and efficiently spending CapEx to build fixed assets. The following chart depicts the significant role of CapEx planning which is driven by service level gaps.
So although the CapEx planning processes activity looks small, it can be significant once we include activities such as defining how service level gaps can be closed (or even whether they should be closed), scoping the engineering necessary works, writing the business case and crunching the numbers, and then actually following through with project implmentation.
The risk aspect of getting the CapEx right
Getting the timing and scope of CapEx right is really an exercise in risk management. The likely consequences of an asset failing to meet a minimum service level is a key driver of CapEx .... if the consequences of that asset failing are neglible (say a 5kVA transformer supplying a single customer) then run to breakdown may be a perfectly valid lifecycle strategy. On the other hand if the consequences include catastrophic failure (say a bridge, a railroad track or a turbine blade) it may be well worth renewing assets ahead of the decline in service level and accept the increased lifecycle costs. The following chart depicts how an assets service level is likely to decline, and how the timing of renewal might be chosen...
Six steps to getting the CapEx right
To help get the above activities in perspective I've found it useful to consider the following six steps to getting the CapEx right...
Each of these steps can involve several diverse disciplines.
Conference
presentations on CapEx
The following PowerPoint conference presentations can be requested by picking the links.
Contact me for more information
You can contact me for more information...
Site last updated
Site last updated 7 October 2008.
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