Expanding an existing operation
Planning CAPEX, OPEX and ROI scenarios from the data your business already has
An established business has an advantage a new project does not: years of real costs, prices and volumes. Use them to build the inputs yourself, compare against doing nothing, and only then look at what suppliers promise.
Short answer
Start with a do-nothing case built from your trends: what output, maintenance, energy and quality costs will look like over the next years if you change nothing. Then estimate the incremental effect of the project against that case: extra sellable output × contribution margin per unit from your accounts, plus avoided costs (maintenance, rejects, energy, labour), minus new operating costs. Divide full installed CAPEX by the net annual benefit for simple payback, and calculate the same in a cautious and an adverse scenario. Every input should name its source in your records; anything without a source is an assumption to test.
Which business records provide the inputs?
| Input | Where it comes from | Watch out for |
|---|---|---|
| Contribution margin per unit | Management accounts: price minus variable costs | Use the product mix the new capacity will actually make |
| Sellable extra output | Order book, customer contracts, lost-sales records | Capacity is not demand; record the evidence |
| Maintenance cost trend | Maintenance cost per year and per asset | Separate one-off overhauls from recurring cost |
| Energy and water per unit | Bills divided by output | Tariff changes versus consumption changes |
| Reject and rework cost | Quality records × cost per unit | Include disposal and customer claims |
| Labour hours per unit | Payroll and rosters | Wage rate and shift pattern for the future case |
Key point: Each number in the business case should point to a report you can show.
Why start with a do-nothing case?
Comparing a project with today's costs assumes today continues. In an ageing operation it often does not: maintenance, downtime and energy may keep rising. A do-nothing case projects your measured trends forward, so the project is judged against the realistic alternative, not a frozen snapshot.
Keep the projection simple and conservative: extend the recent trend for a few years and state the assumption. If the trend is unclear, keep costs flat and say so.
Key point: Being explicit about the alternative is often more important than precision.
A hypothetical incremental calculation
Hypothetical example — invented values with stated assumptions
Assumptions: full installed CAPEX 300,000; extra sellable output 400 tonnes per year backed by customer orders; contribution 120 per tonne; avoided maintenance 15,000 per year versus the do-nothing case; extra energy 3,000 per year. Taxes, financing and inflation excluded.
| Line | Expected | Cautious | Adverse |
|---|---|---|---|
| Extra contribution (t × 120) | 48,000 | 36,000 (300 t) | 24,000 (200 t) |
| Avoided maintenance | 15,000 | 10,000 | 5,000 |
| Extra energy | −3,000 | −4,000 | −5,000 |
| Net annual benefit | 60,000 | 42,000 | 24,000 |
| Simple payback (300,000 ÷ benefit) | 5.0 years | 7.1 years | 12.5 years |
Simple payback = full installed CAPEX ÷ net annual benefit; simple annual ROI = net annual benefit ÷ CAPEX × 100
The adverse case is not a forecast; it shows how much the result depends on the sales volume. For a fuller method with one-input-at-a-time sensitivity, see CAPEX, OPEX and ROI sensitivity analysis.
What belongs in CAPEX for an existing site?
- Equipment, controls and integration with existing systems
- Dismantling, removal and disposal of old equipment
- Tie-ins to live utilities and any upgrade of power, water, air or cooling
- Civil and building changes inside an occupied site
- Planned downtime and temporary measures during works
- Commissioning, training, initial spares and contingency
What do you do when an input is missing?
- Use a range rather than a single number and show both ends
- Replace estimates with short measurements where possible (meters, timed counts)
- Ask your accountant for contribution by product if only total margin is known
- Ask suppliers to state their assumptions for any figure they provide, and compare them with your records
How should the result be used?
Use the scenarios to decide whether the project is worth an RFQ, which inputs suppliers must confirm in writing, and which KPI will prove the benefit after installation. A planning estimate is not a quotation, a credit assessment or a guarantee.
Key point: Decide on the evidence that would change your mind before you see the quotes.
Free, optional tools
Use the framework on your own, or with these free tools. Nothing here commits you to anything.
Sector-specific projects
Global B2B Group covers cross-sector industrial projects. Single-sector projects are handled in depth by the group's specialist platforms.
Frequently asked questions
Should we use profit or contribution margin?
For extra output, contribution margin (price minus variable cost) is usually the right measure, because fixed costs often do not change. Confirm with your accountant.
How many years of data do we need?
Three years is a practical minimum for trends; use what you have and state the period.
Should we include financing costs?
Keep the operating case separate first. If you later consider external financing, model it as a separate step with the lender's actual terms.
Can we rely on a supplier's ROI estimate?
Treat it as a claim to check against your own inputs. Ask which assumptions it uses.
Build the scenarios with your own numbers
The free CAPEX, OPEX and ROI calculators let you test your inputs. All results are planning estimates only.
Managed RFQ support applies to projects from USD 250,000. Buyer tools are free; no price, availability, financing or outcome is guaranteed.
Sources and frameworks
Next in this series: A multi-supplier expansion plan for an existing site: URS, RFQ, proposal comparison, milestones, acceptance and KPIs
Overview framework: Start with the Outcome: A Practical Framework for Better Agrifood Procurement
General procurement guidance only. World Bank documents are cited as useful methodology frameworks; they are not binding on private buyers. Confirm legal, technical and regulatory requirements with qualified advisers.
