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Bryan Christiansen

Operations

Repair or Replace an Asset?

Step-by-step cost analysis

Published: Thursday, October 26, 2023 - 11:03

Deciding whether to repair or replace an asset can be difficult. That’s why maintenance and reliability managers perform an analysis to determine whether it’s more economical to repair a failing asset or replace it with a new one. This process helps minimize total costs while ensuring that your organization’s operational needs are met.

We’ll give you a step-by-step breakdown of how to perform such an analysis so you can make more cost-effective asset management decisions.

Understanding the importance of a repair vs. replace decision

Making a hasty decision in the “repair vs. replace” dilemma can have far-reaching consequences. Opting for a quick repair might seem like a cost-effective solution in the short term, but it could cost more in the long run if the asset continues to fail. And it’s likely you’ll experience lower productivity in the meantime. 

Conversely, rushing to replace an asset can mean a significant outlay of capital that may have been avoidable if a simpler, less expensive repair could have extended the asset’s useful life.

This means that the decision isn’t just about immediate costs. It’s a strategic choice that can influence your organization’s operational trajectory for years to come through things like:
• Operational efficiency
• Safety features and advancements
• Energy savings 

Steps for performing repair-or-replace analysis

Understanding how and why to conduct a robust repair-or-replace analysis is fundamental to effective asset management. Below are the key steps. We’ll use an industrial belt conveyor with a motor failure as our running example throughout this guide.

Step 1: Gather data about the problematic asset

The first step in any repair-or-replace analysis is to collect as much information about the asset as possible. This involves reviewing:
• Historical maintenance records
• Failure reports
• Warranty information
• Parts use history 

The more data you have, the more informed your decision will be.

But don’t just rely on documentation. Talk to the operators or maintenance staff who work with the asset regularly. Their insights can provide an on-the-ground perspective that might not be apparent from the numbers alone.

Example

For an industrial belt conveyor with a motor failure, you would look through the conveyor’s maintenance history and failure reports, determine how much in labor and parts you spent on the asset in the last 6–12 months, and consult the operators on its performance. 

If the conveyor has experienced multiple motor failures during the last 12 months, along with multiple minor issues and staff complaints, this is a good sign that the asset is nearing the end of its useful life.

Step 2: Calculate the repair costs

The second step is to evaluate the costs involved in repairing the asset. Consult with maintenance teams or even external vendors to get accurate estimates. Factor in the costs of parts, labor, shipping, or other fees.

The repair costs aren’t just about the immediate fix; you need to take into account the potential for future failures. To estimate the cost of future repairs, pull up historical records. Look at how many times the asset has failed over the past couple of years and how much you spent on each repair. Use those numbers to estimate its annual repair costs.

Example

For our conveyor, let’s assume the parts for the motor repair would cost $3,000, labor another $2,000, and operational downtime adds $1,000. That totals up to $6,000 for a complete repair. 

If we know that the conveyor has failed four times in the last two years since it began having problems (or two times per year on average), we can assume that maintaining this conveyor will cost us a minimum of $12,000 per year.

Step 3: Calculate replacement costs

Calculating the replacement costs involves more than just the price tag of the new asset. You must also factor in extras like:
• Delivery and installation
• Integration with existing systems
• Training for operators

These “hidden costs” can significantly affect the overall price of a new asset.

It’s also crucial to understand the new asset’s expected life span and performance capabilities. A more expensive asset may offer features or efficiencies that justify the higher upfront cost.

Example

A brand-new belt conveyor might cost $15,000, plus an extra $2,000 for installation and $1,000 for training and transitional downtime. This would bring the total replacement cost to $18,000.

Step 4: Consider operational impacts and other factors

After you’ve got your cost estimates in hand, the next step is to consider other factors that could affect your decision. These include the operational and financial impact of downtime, whether there are any safety risks with the current asset, and how the asset fits into your overall workflows.

Consider the opportunity costs as well. Can you find a better way to use the money spent on a new asset? Or, conversely, could a new asset bring efficiencies that make it worth the investment?

An asset that is constantly failing can cause downstream effects like delayed production schedules, more overtime, missed deadlines, and low employee morale. All of this costs money in the long run.

Example

A conveyor that has frequently led to unplanned downtime may cause disruptions that turn out to be much more problematic to your business than a brand-new conveyor. Also, if the motor failure puts operators in danger, you must consider legal and safety risks as well.

Step 5: Make your decision

Finally, it’s time to make your decision. This should be a calculated choice that weighs both the short-term and long-term considerations outlined in your analysis. It’s not just about choosing the cheapest solution; it is about choosing the options that best position your organization for long-term success.

Example

Given a $6,000 repair cost of a belt conveyor, and an $18,000 replacement cost, consider the long-term implications. If this is a one-time fix that can extend its life for another five years without further major issues, it’s probably worth it. 

However, if the asset has ongoing issues with root causes you can’t properly address (like age or environmental factors)—and you’ll have to do this costly repair once or twice a year—then replacement will be the more cost-effective option in the long run.

How CMMS simplifies the ‘repair vs. replace’ analysis

A modern CMMS can play a vital role in your decision-making process. By storing and analyzing historical data, CMMS systems reduce guesswork by making it easier to access an asset’s history and predict its future performance.

In the case of our belt conveyor, its reliability team will face a crucial decision. Using a CMMS, they can access the conveyor’s maintenance history, including comprehensive reports that show the costs of replacement parts, the labor costs for these repairs, and the labor hours in total. Reports can also reveal how many times the conveyor broke down due to similar motor-related issues.

With these rich data, the team can forecast further repair costs as well as find out the underlying issues causing these failures. 

If investing in a new belt conveyor is more economical in the long run, CMMS data can provide the validation needed to justify this significant capital expense.

Published Oct. 3, 2023, on Limble.

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About The Author

Bryan Christiansen’s picture

Bryan Christiansen

Bryan Christiansen is the founder and CEO of Limble CMMS. Limble is a modern, easy-to-use mobile CMMS software that takes the stress and chaos out of maintenance by helping managers organize, automate, and streamline their maintenance operations.