Calculating the true cost of equipment ownership
When local government fleet departments face large capital expenditures for equipment, such as trucks, initial price can become a stumbling block. However, the initial cost is not the only factor local government purchasers consider when buying equipment.
When buying a machine, purchasers consider how much that equipment will cost over time, including:
Cost of maintenance and repair. A true cost calculates both time and money. Equipment dealers can provide the best estimates for those costs.
Productivity. How much equipment downtime can be expected?
Resale value. How much money can be recovered after the equipment carries out its specified applications and projected life span?
Guarantees. Do the equipment dealers offer maintenance, repair and resale guarantees that ensure maximum benefit from the equipment?
Life Cycle Costing (LCC) is a way to calculate the actual total cost of a machine purchase. LCC evaluates all factors in the total cost of equipment use, eliminates surprises and ensures the highest possible value for the equipment dollar. It helps set budgets, predict expenses and establish an equitable process for selecting equipment. It also can save money.
To calculate LCC:
- Start with the equipment purchase price $________
- Add the dealer-guaranteed repair expenses over the life of the equipment. + $________
- Add the scheduled maintenance costs over the life of the equipment. + $________
- Subtract the guaranteed resale value. – $________
- That establishes the total cost for the piece of equipment. = $________
The formula works only if the equipment dealer is willing to guarantee repair expenses over the life of the equipment and if the dealer is willing, at the time of purchase, to guarantee a resale value after an agreed upon period of time. LCC also can be applied to equipment leasing.