{"id":14765,"date":"2019-03-05T11:00:11","date_gmt":"2019-03-05T19:00:11","guid":{"rendered":"https:\/\/www.palada.net\/index.php\/2019\/03\/05\/news-8514\/"},"modified":"2019-03-05T11:00:11","modified_gmt":"2019-03-05T19:00:11","slug":"news-8514","status":"publish","type":"post","link":"http:\/\/www.palada.net\/index.php\/2019\/03\/05\/news-8514\/","title":{"rendered":"Shifting Investments: CapEx vs. OpEx"},"content":{"rendered":"

Credit to Author: Alex Gershman| Date: Mon, 04 Mar 2019 21:15:00 +0000<\/strong><\/p>\n

Managing a global infrastructure portfolio of new build-outs, ongoing services and modernization efforts is no small feat. But a thoughtful CapEx (Capital Expense) to OpEx (Operating Expense)\u00a0 program can alleviate budget constraints \u2014 and allow you to focus on your core business.<\/p>\n

I recently led a panel at the 2018 Innovation Summit Session<\/a> in Atlanta called \u201cUnlocking the Value of Your Assets: Shifting Investment from CapEx to OpEx,\u201d where we discussed the rising shift in investment strategy from CapEx to OpEx for a host of investments. Below I\u2019ll offer a high-level overview of the presentation, share three key trends we\u2019ve observed in its transition and apply these findings to the case of aging switchgear.<\/p>\n

Defining \u201cCapEx\u201d and \u201cOpEx\u201d<\/strong><\/h2>\n

For purposes of this discussion, we\u2019ll forgo the FASB accounting definitions and talk about these terms more practically. Here, \u201cCapEx\u201d refers to capital outlays and typically a major and rigid process for investment. Conversely, \u201cOpEx,\u201d or capital outflows, are associated with a more flexible process for investment. In recent years, there has been a noticeable shift from this inflexible investment process to one which is much more adaptable. Why the change?<\/p>\n

Technology as an enabler:
Strong trend from CapEx to OpEx in IT<\/strong><\/h2>\n

When we think of the origins marking the shift from CapEx to OpEx, the IT industry likely comes to mind with the rise of the cloud. Companies no longer needed to buy physical assets upfront, whether that was servers, racks or other hardware. Instead, they could use that capital to derive potential savings and benefits, whether that was having more controlled expenses or freeing up capital to be invested in other business areas. However, CapEx to OpEx is not just an IT phenomenon.<\/p>\n

Using CapEx to OpEx to achieve simple and lower-cost switchgear<\/strong><\/h2>\n

At Schneider Electric, we see this investment shift cutting across industries. And with this, we\u2019ve seen rise of three separate, but related trends related to CapEx to OpEx, either driving that shift or driven by it. They are:<\/p>\n

    \n
  1. The rise of \u201cas a service\u201d models,<\/li>\n
  2. The move toward innovation in modernization vs. replacement of certain assets; and<\/li>\n
  3. The trend to more flexible financing options for various types of projects.<\/li>\n<\/ol>\n

    For the purposes of this post, we\u2019ll focus on the second trend: a move toward modernization solutions rather than the replacement of certain assets using the example of switchgear. Instead of choosing to replace aging switchgear, modernization solutions<\/a> take from 15 minutes to a few hours to install and can standardize a facility\u2019s switchgear to modern standards. The solutions are not only easy to maintain, but also require fewer resources and are less costly<\/a>. The biggest benefit, of course, is that reliability and safety of the power distribution system improve as the risks associated with unplanned outages and aging equipment decline. So how do modernization solutions work?<\/p>\n

    \"switchgear<\/a><\/p>\n

    Direct Replacement circuit breakers for existing switchgear<\/p>\n<\/div>\n

    Replacement and retrofill low voltage and medium voltage solutions adapt the latest-technology circuit breakers into your existing OEM-built switchgear or switchboard cell. This enables an upgrade of the active components without affecting the cables in most cases \u2014 and taking on the risk and challenge of an outage replacement. Cost savings occur immediately and include: lowered maintenance requirements across switchgear equipment (since all solutions operate and rack in the same way regardless of installed equipment brand), fewer spare-parts inventory and less inventory management (because there\u2019s only one set of spare parts for all frame sizes, regardless of how many OEMs\u2019 breakers are replaced), streamlined after-sales vendor management and finally, standard and modernized capabilities across switchgear.<\/p>\n

    Switchgear modernization<\/a> is a boon for facility owners with aging and or mixed-OEM electrical distribution equipment. By using a replacement strategy rather than costly rip-and-replace, facilities can upgrade to the latest, safest technology at lower costs. This is because modernization solutions enable the end customer to pull from (OpEx) budget dollars \u2013 they don\u2019t have to go through the whole (CapEx) allocation process that they might have had to undertake with a rip-and-replace strategy. Modernization solutions are flexible with the option to customize for any need, and offer an easy path to standardized, streamlined maintenance over the long term. It\u2019s truly a win-win: costs drop while safety and reliability improve.<\/p>\n

    Switchgear modernization is just one example of using a CapEx to OpEx investment strategy to achieve greater utilization, value and flexibility in your core businesses. I encourage you to replay the Innovation Summit session for a deeper dive into the insights and perspectives of CapEx to OpEx programs shared by panelists representing companies from a variety of industries, including JLL, ArcelorMittal, Kyotherm and Outlier Energy. Their comments provide real-life examples addressing the \u201cwhy,\u201d the \u201cwhat\u201d and the \u201chow\u201d: why<\/em> we\u2019re seeing this shift in investment strategy, what <\/em>their organizations have done about it and how<\/em> they\u2019ve gone about their approach.<\/p>\n

     <\/p>\n