Managing Capex Risk for RTLS Investments in Uncertain Times

In early 2020, the world faced an unprecedented economic shock as the Coronavirus pandemic unfolded. Business leaders now navigate heightened uncertainty, prioritizing cash flow preservation while seeking ways to mitigate risk and drive operational efficiency.

The pandemic’s legacy will linger beyond the immediate crisis, affecting even the most resilient companies. In this new normal, cash flow remains paramount, and scrutiny of every dollar spent has intensified.

One common strategy is to defer capital expenditures (capex). Yet, deciding which projects truly add value—and which should be postponed—poses a significant challenge for operational and financial leaders alike.

Mark D. Mishler offers a practical solution in his article, “Capex Risk Management during the Coronavirus Pandemic.” He outlines a five‑step risk‑model that can guide capex decisions, including investments in Real‑Time Location Systems (RTLS).

Applying Mishler’s framework helps determine whether an RTLS deployment is timely and worthwhile for your organization.

Step 1: Identify the Issues

Start by pinpointing the most critical operational and financial challenges. Consider both tangible and intangible factors—cash flow pressure, supply‑chain disruptions, regulatory changes, employee morale, and financing constraints. Prioritise issues that directly impact working capital and revenue generation.

For example, a glass‑manufacturing company may rely on racks priced between $500 and $2,000. Pandemic‑induced slowdowns cause customers to retain racks longer, leading to shortages and potential loss of sales.

Step 2: Conduct Risk Identification and Scenario Analysis

In turbulent times, new risks emerge that may never have been encountered before. Perform a thorough risk assessment to uncover potential pitfalls and their consequences. Unlike routine annual risk reviews, this analysis should be revisited regularly during periods of volatility.

Beware of Bias

When evaluating risk, guard against cognitive biases—confirmation, simplicity, group, overconfidence, anchoring, and availability biases can distort judgment. A balanced, data‑driven approach mitigates these pitfalls.

Illustrative Example

Assume the company uses 8,000 racks, each worth $1,000, with an annual loss rate of 10%. That translates to an $800,000 yearly replacement cost. Insufficient rack inventory could also mean missed revenue, while excess inventory ties up cash and incurs storage costs. An RTLS solution can help mitigate these risks.

Step 3: Analyze Identified Risks

Risk analysis can be quantitative or qualitative. Quantitative methods, though precise, are often difficult to implement due to data constraints. Qualitative scoring—using a heat‑map or similar framework—provides a practical alternative. For instance, a “probable” loss of $800,000 rated as “minor” severity results in a moderate risk score, whereas a “possible” shortage with “major” revenue impact yields a high‑risk rating.

After scoring, the organization is ready to explore mitigation options.

Step 4: Develop Risk Mitigation Alternatives

Mitigation strategies include:

• Acceptance – proceed without intervention.
• Avoidance – alter project scope or eliminate the risk altogether.
• Control – implement actions that reduce likelihood or impact.

In many cases, cutting capex can be tempting, but strategic investment—especially in technology that strengthens resilience—can position a company to rebound stronger than competitors.

Returning to the glass company, an RTLS such as AirFinder offers indoor and outdoor asset tracking, real‑time location updates, and analytics on inventory turnover. These capabilities reduce rack loss, lower holding costs, and deliver tangible ROI.

Step 5: Select and Implement the Best Solution

Once a mitigation option is chosen, assess implementation costs, including initial capex, ongoing maintenance, battery replacements, and subscription fees. A comprehensive cost‑benefit analysis ensures the chosen RTLS delivers net value over its lifecycle.

The Importance of Leadership

Effective leadership is critical during crises. Leaders must navigate uncertainty, make decisive choices, and focus on priorities that safeguard cash flow, liquidity, and operational efficiency. Transparent communication and decisive action build stakeholder confidence during turbulent periods.

Final Note

Need assistance evaluating the risks and benefits of an RTLS implementation? Whether you require indoor, outdoor, or hybrid asset tracking, Link Labs can guide you through the five‑step process: identify issues, conduct risk analysis, assess risks, develop mitigation alternatives, and select and implement the optimal solution. Contact us today for additional resources.