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Good Data Helps Minimize Life Cycle Costs

data-life-cycle-costs-0215-banner Most small business owners and managers have purchased equipment solely because of decreased cost.  Unfortunately, what looked like a great deal may have cost more to maintain than the pricier alternative. This is why forward-thinking professionals use Life Cycle Costing (LCC) when evaluating items for purchase.

Estimating Maintenance and Repair Costs

Life Cycle Costing, sometimes referred to as Total Cost of Ownership (TCO), means estimating an asset’s cost over its lifespan; it's the sum of purchase price plus ownership and disposal costs.  In an ideal world, these numbers would be known.  Though running costs, like energy consumption, can be estimated with some certainty, maintenance and repair costs are sizeable unknowns.
Equipment will determine the type of maintenance required. For example, machinery typically needs periodic servicing to keep it operating at optimum efficiency, which is different than the maintenance required by computer equipment or software. In the IT world, maintenance usually refers to updating software to the latest version; not just business programs but the often overlooked anti-virus software, time and attendance systems, and backup storage. Repairs, on the other hand, include activities like replacing hard drives, damaged screens, or other breakage keeping computer systems from working properly.

"Well-maintained equipment can be easier to dispose at end-of-life and may have a higher residual value."

The Maintenance Variable

To further complicate matters, a business may see better return on their equipment investment by spending more on maintenance. For instance, keeping software updated to the latest version ensures the newest features are available—potentially increasing office productivity. The same can be said for replacing hard drives prior to failure rather than after the fact, especially when losing a hard drive implies loss of data and keeps an employee from working. An additional benefit is well-maintained equipment can be easier to dispose at end-of-life and may have a higher residual value. When estimating LCC, consider the following maintenance/repair scenarios:
  • Zero maintenance – run it until it fails
  • Minimum – spend as little as possible to keep it operational
  • Recommended – do what the manufacturer/developer suggests
However, unless there's historical data to review, these scenarios are little more than educated guesses. Implementing an asset management system guarantees all time and money spent on maintenance is tracked; providing base data for LCC and future equipment purchases.

Now and In the Future

iStock_000040640028A well-designed asset management system allows users to proactively schedule maintenance rather than waiting until it's needed (when it's usually too late to avoid a major expense).  It also ensures all expenditures are recorded for a specific item or unit instead of being lumped into one cost “bucket”. With detailed records, problem equipment can be weeded-out before becoming too expensive, while items with above average reliability may be kept longer than originally planned. In just a few months, an asset management system builds historical data that can be used to project future maintenance and repair costs. It's often possible to determine which models or brands are cheaper to run, and, finally, thorough asset management promises accurate LCC estimations.