Costly repairs to equipment or machinery might be minimal when compared to the costs associated with a new asset, plus the time it takes for your team to familiarise themselves with new machinery.
Alternatively, a new assets long-term benefit could cost less compared to the cost and disruption of breakdowns, inefficiencies, and other related costs of ownership. The third option is to buy used machinery at a good price but also a shorter lifespan, expired warranties, and financing restrictions.
Decisions, decisions!
What will help you to decide?
1. Equipment performance.
First, do not assume that older machinery translates into higher failure rates. This does not suggest that older machinery performs better than new models, but failure rate is often determined by the way a machine is treated in its lifespan.
You will need to look at the assets overall effectiveness, the failure rate, the mean time it takes to repair, and delivery to a targeted return on investment. Having accurate performance data will shape your analysis.
2. Total cost of ownership (TCO).
The TCO is not restricted to the purchase price but refers to all related costs. Some modeling is required – buying a bargain can surprise with unexpected costs such as downtime and repairs while a high-priced item can yield savings due to less repairs, energy efficiency, and steady uptime.
Ultimately, TCO calculations settle on operations and maintenance. Operations costs include fuel, labour, and other routine costs. Maintenance includes replacement parts and repairs. Naturally, the TCO can change over the years.
3. Asset utilization.
Simplistically, the machine’s cost per hour – the TCO divided by the total run time. Here, one machine may have a higher TCO than another but if its frequently used and generates more revenue it could be more valuable.
There are many variations and permutations which means that an in-depth utilization analysis with some asset modelling can aid your thinking when deciding to repair or replace.
4. Safety concerns.
The TCO could be low, but the machine may pose severe risk if unsafe, either functionally or environmentally. Employees have a right to a safe work environment, and legal risk has a high cost of its own.
There are also financial and tax considerations which add to the complexity of deciding whether to replace or repair.
Luhann van Zyl
Head of Asset Division
Mubesko Africa
mubesko.co.za
Mubesko Africa is a well-established consulting company which operates in both the public and private sectors. Ser vices of fered include Financial Accounting and Management Support, Asset Accounting & Modeling, and Forensic Examination.