Mechanical Insights

Pricing Out Budget - What Equipment Needs to Be Replaced?

Jan 21, 2021 8:30:00 AM / by Tate Engineering

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“What equipment do I need to replace?” If your crystal ball was working properly, this question would be a lot easier to answer. If you can’t predict the future, facility budget pricing can feel like guessing and hoping you’re right. You want to make sure your budget will get you through the coming year, but how do you prioritize items in your budget? On top of that, how do you make sure you’ve included everything?

Major components of a facility’s budget include service agreements, maintenance costs, equipment installations, and inspection expenses. Each of these categories needs to be factored into planning a budget with enough funding to get you through the budget cycle. Listing all of these categories ahead of time can help you see the bigger picture, as well as the relationships between categories, before working them into your budget.

Start with Last Year

Before making your budget for the upcoming year, look at how well the previous annual budget performed. Were there any categories that were way over or under budget? If so, try to find out why. Were maintenance expenses much higher last year because of a finicky piece of equipment that was breaking down all of the time? Was that piece of equipment replaced with a new model? If so, maintenance costs may go down in the coming year.

Related: How Preventative Maintenance Can Save You Money

In addition to last year’s budget, look at how your facility performed. Was there enough maintenance in general? Look at how unexpected downtime affected the entire facility and what the cost impacts were. This can be a great way to support increased budgets for general and preventative maintenance.

Related: Facility Budgeting Tips

Service agreements need to be reviewed as well. Are your service providers holding up their end of the bargain? Review what their contracted responsibilities are, and make sure these match what they’ve been doing. If not, you may want to consider restructuring your agreement with them or pursue a new provider.

Repair or Replace

One of the biggest decisions you’ll make while preparing your facility budget pricing is whether to allocate money to keep certain equipment maintained or replace it entirely. This is not an easy decision, and there are many pros and cons to weigh. Look at some of the historic costs of maintaining and repairing the old equipment. Do you think these costs will be similar in the coming year? What about the cost to replace, install, and service the new equipment? Compare these amounts while also keeping in mind the impact of downtime and loss of productivity due to unexpected equipment failure.

If the cost to fully replace the machine is a no-go, consider whether or not remanufacturing is a possibility. Remanufacturing can get the equipment to a nearly new state, but without the cost of a full replacement. Remanufacturing will help to keep your maintenance costs down, but is not a true alternative for a full replacement. Even remanufactured equipment will have to be replaced eventually.

Things to Remember

Many aspects of a facility’s budget are easy to forget, so we’ll list some common ones here:

  • Service Agreements
  • Preventative Maintenance
  • Unscheduled Maintenance
  • Inspections
  • Capital Expenditures and Installation Expenses

All of these categories affect each other as well. The more preventative maintenance you do, the less unscheduled maintenance should be needed. More money being spent on capital expenditures for new equipment at your facility will typically reduce maintenance and service costs across the board. If your facility has been thinking about a big project, Northwestern has some great information on budgeting project costs. Working this into your total budget may be key to keeping budgets lower in other categories.

One of the most important things to keep in mind when preparing your budget is knowing what your facility’s goals are for the coming year. If preserving cash is paramount, maybe it’s not a good year to look at upgrading a bunch of equipment. If increasing productivity is key, you may want to put more money into preventative maintenance. Aligning your budget with your facility’s goals helps to keep the entire organization on the same path, and will make it easier to get a new budget approved. For help with budgeting for services, and getting the services and equipment your facility needs, contact the experts at Tate Engineering.

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Written by Tate Engineering