Lifetime Costs… Do You Actually Look At Them?
Our resident bean counter, Rachel Westerman discusses why capital projects should be looked over the longer term rather than just focusing on the initial outlay of money.
“Recently we invested in new welding machinery for the factory. Rather than just looking at the capital costs, we based the investment on the running costs (including electricity, welding consumables and labour). Buying more efficient and up-to-date machinery can cost a substantial amount but the project payback was definitely worth the additional costs. It will only take us 3 years to recover the investment, and this does not take into account the reduced labour time which can now be put to better use making more fuel-efficient boilers.
“Although looking at projects in this way takes longer and in some cases is more difficult to quantify, it does work out better for all stakeholders to calculate the overall investment before signing that purchase order.
“Our Yorkshireman2 boiler is expensive when compared to other boilers but the savings from lower running costs should outweigh the additional capital expenditure in a relatively short space of time. Fuel is set to start rising again in the near future so this needs to be taken into account when considering your investment.
“It is disappointing when the sales team report back to me that although we are favoured by the engineers, once it gets passed on to the purchasing and accounts people, it often becomes more about the initial capital cost than the lifetime cost.
“I urge other ‘bean counters’ like me to consider the longer term investment (and reduced operating costs) rather than just what is in the capital budget for the year.”