Capex & Growth (2)
Looking first at trying to offset some of the growth cycle’s effects, you may find that short-term leasing—that is, operating leases of needed additional assets—is an appealing option. There is a cost premium with this approach compared with either outright purchase or longer-term financing leases. On the other hand, an operating lease avoids risking overcommitment to investment in Capex, in case growth should subsequently slow more quickly than expected. The outsourcing of some services, or the subcontracting of functions that are normally provided from internal sources, can also serve to reduce your exposure to overcommitment risk. That risk reduction applies to overcommitment in both Capex and people investments. Again, there is usually a cost premium to these shorterterm rental or outsourcing solutions, but there’s also a significant reduction in risk.
Direct efforts to smooth out peaks of the growth cycle can also be a fertile field for minimizing the risk of overinvestment in additional capacity. Here you want to look for manageable ways to segment your market’s total demand without undue risk of losing or shrinking it. If your marketplace can be segmented geographically and the segments approached sequentially, the growth peak may be moderated. A major trade-off risk, of course, might be giving your competition more response time
than you are comfortable with. Even so, the total mix of benefits from a smoother but longer growth cycle may be worth the competitive risk. Do the homework. List the pros and cons. Pencil out the likely scenarios, then turn them into alternative forecasts to be compared with one another. In fact, this process of alternative scenario analysis is the heart of the cash-driver shaping and projections process that we turn to next.
Taken From : Cash Rules
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