Page 65 - IEC Insights Sept-Oct21
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Keep in mind that TCO is not necessarily
constant. The depreciation expense shows
TO CALCULATE TCO over time, while maintenance and repair
costs fluctuate with usage hours, operating
conditions and advancing machine age. Lean
on the fleet management software to help
determine a fleet management plan and those
historical costs. Reports generated from the
+ BEGIN BY ADDING UP: software could reveal the cost curve for owning
and operating then pinpoint the best time to
+ The purchase price, including taxes rotate the asset out of your fleet.
+ The cost of insurance and extended warranties
+ The cost of transporting the equipment from While TCO is valuable, utilization analysis can
jobsite to jobsite give contractors even more insight into the
+ Maintenance and repair costs, including parts, equipment profitability. Higher utilization often
supplies and labor means lower cost per hour of use – the more
+ Fuel and oil costs the machine is used, the higher the generated
+ Storage costs profit. Assets that have lower utilization would
be good candidates for rentals.
+ Interest on financing
+ Depreciation To make a buy vs. rent comparison, look at
the annualized TCO compared to the cost of
renting the same unit for the number of days
or weeks per year the equipment is used. Don’t
look only at hours of usage per year; even if
your company uses an asset for a small number
x For continuing expenses such as insurance, of hours per year, it’s essential and should
maintenance and fuel, you need to estimate probably be owned if the equipment is used
how many years your company plans to own the almost daily.
asset, then multiply the projected annual costs
by that number. The total cost of ownership isn’t just a number;
it’s an important piece of data that can help
you discover and drive even more value. TCO
and utilization are essential to developing an
impactful fleet strategy. Taking these steps
can help your company achieve annual budget
– Subtract any revenue expected from the sale goals and lower fleet costs by making smarter
of the unit at the end of its planned lifecycle to decisions around what equipment to buy, when
arrive at the TCO. To annualize the TCO, you need to sell assets and when to rent instead of own.
to divide the TCO amount by the number of years
your company intends to own the equipment.
www.ieci.org | September/October 2021 | Insights Magazine 63
