When to Replace Capital Equipment?

 

This is an interesting challenge – when is the right time to replace capital equipment at your facility? Many businesses do not have a plan for this, but they should – the cost and stakes are quite high.

A couple of obvious triggers might include:

• Equipment failure – Clearly, this is a driver for replacement, but it is often the least cost-effective way to do it. Replacing equipment on an emergency basis is almost always the most costly and disruptive way.

• Building renovation – If a building renovation is being undertaken for whatever reason, depending on how comprehensive of a renovation being performed, equipment in this portion of the building that needs to be replaced is often included in the renovation.

What about the rest of the time? Every piece of building equipment or building system has an expected life cycle, so somewhere within that life cycle, it will need to be replaced (if you are unsure about the expected life cycle for a particular piece of equipment, start with BOMA and also check with the manufacturer for non-commercial building equipment). How do you determine the best and perhaps most cost-effective replacement time?

The answer might be more complicated that it would seem on the surface, but there are tools that can help take the guesswork out of it. The challenge is that each piece of equipment or building system is unique in the way that it is used and impacts the operation of your facility. The answer to the question should be based on an objective criteria that can be applied consistently. However, if each system has a different impact how do you settle on a criteria?

Try this solution: create a matrix for each potential criteria that would cause you to want to replace a piece of equipment or building system. Next, give each criterion a weighted multiplier based on how critical that criterion is for your operation. For instance, if yours is an office building where maintaining the proper temperature for the occupants is a high priority, that criteria might be weighted higher than operational cost trends or other criteria. Some criteria that you might consider could include (but are not limited to):

• Life cycle – where is the equipment in its expected life cycle? Is it 20 years old with a 25-year expected life cycle? That might be an important factor to consider in maintaining reliable operation.

• Current operational cost / trend – if you track energy use or other operational costs, this might be a factor. Perhaps there is a trend indicating that it is becoming less efficient. Perhaps newer technology exists that is significantly more efficient?

• Current maintenance cost / trend – if you track your routine maintenance and repair costs and have noticed an increase, it may be an indication that the equipment is wearing out and replacement should be considered.

• Functionality – does this equipment meet the current needs of the user(s). This will be different between a manufacturing operation or a commercial office building, but is still critical

• Reliability – has this equipment been having more issues recently? What are the recent failures caused by and are they increasing?

• Criticality to the mission of the building / operation – how important is this system to the function of the building or operation of the processes in that portion of the building? For instance, if the domestic water piping for a fully occupied office building is aged and starting to leak indicating the end of life for the system, it should be addressed sooner rather than later as the building cannot function without water.

There may be any number of other criteria that you could consider so list those that are important decision-making factors for your application.

Next, make a list of all of the important building equipment and systems and score each of them on the criteria that you created. This should be performed as a team with representatives from key areas of the business operation that may have different perspectives and relative importance of the criteria being considered.

Finally, tally up the weighted scores that you have mutually agreed to. What emerges will become a prioritized list of capital improvements that you can begin planning for.