Your heavy machinery plays a vital role in your work. It enables your team to complete projects efficiently and allows you to reduce your overall costs and improve revenues over time. But when machinery breaks down, you have a decision to make: do you repair or replace your construction equipment? The decision entails analyzing a few factors and reviewing the overall goals of the organization.
To help you make the most effective choice, we’re highlighting what to consider when reviewing whether to repair and replace heavy construction equipment for BC operators.
When your machine breaks down, the first element to review is your current level of maintenance coverage. Verify the machine’s current warranty status. Is the equipment new and covered under the manufacturer’s warranty? Did you receive a guarantee when you bought the equipment used from a supplier?
If you don’t have coverage for the equipment, you should consider the 50/50 rule. The 50/50 rule is used in the construction equipment marketplace and dictates that replacement of the system is not necessary until the repair cost exceeds more than 50% of the total cost of replacement. When reviewing the 50/50 rule, don’t forget to take the labour for the repairs into full consideration.
In deciding whether to complete repairs, you should note that the cost of repair work tends to increase to about 30% of the total replacement cost over several years. Depending on the equipment and its use, the repair cost can rise over 50% in as little as five years.
So when you have expensive repair work to complete, ensure you first review the cost of new equipment and determine whether the repair cost exceeds 50% of the new system price before proceeding with the required maintenance.
One of the significant components in your decision-making process will be your financial position. Is your BC business able to allocate resources to acquire heavy construction equipment at this time? Would you be able to take a loan to bring in new equipment, and how would this loan impact your finances moving forward?
Below are several key questions to review when looking at your financial position
Do you have payments left on the machine?
You may be able to sell the equipment rather than spend money on repairs if you’ve completed all the payments.
What is the current resale or exchange value?
To determine whether you should sell or repair, speak with an expert about the current resale value.
How will the repair impact the balance sheet?
Your current balance sheet reflects the company’s ability to complete projects in the forthcoming months. Is the balance sheet healthy enough to go through with the repairs? Will you have to dip into a reserve fund for the capital? Ensure that any repair work doesn’t negatively impact your ability to build revenue in the short term.
Do we have an estimate for the repairs?
Get an estimate for the repair work before making any final decisions. This estimate will allow you to compare the total repair costs with your value for the equipment. You can then use the 50/50 rule to decide about the need for repair or replacement.
While you may clearly understand the potential value the equipment will have within your projects, you may not understand the potential value of equipment upgrades. That’s why it’s so valuable to speak with a local equipment expert who understands the newest products and their values and can help you make effective decisions about replacement and repair processes.
Here are a few questions to ask your local BC heavy construction equipment expert:
1. What are the upgrade options for my equipment?
If you have a particular piece of equipment that requires an expensive repair, speak with the equipment expert about the potential upgrade options. They can detail the newest versions of the system and showcase the performance values for the equipment. Whether the system is a new loader, a crane or a forklift, having this information helps you decide on the improvement in capacity and efficiency gained from investments in upgrades.
2. What is the general maintenance schedule for my equipment?
When speaking with an equipment expert, ask about the maintenance plans for both your current systems and any potential new additions. Discuss the total cost of the annual maintenance and compare that cost with the value the equipment brings to your organization. Consider your current projects to analyze the return on investment from the equipment and its maintenance schedule.
3. What is the lifetime value of my equipment?
When reviewing your options, take into consideration the total lifetime value of your current selection of equipment. An equipment expert can provide you with the latest information about lifetime performance and whether this performance value can meet your requirements for the years ahead.
For example, an equipment expert might suggest that your equipment only has a year of usable performance remaining. So you may be spending more on equipment than you would gain from working with the equipment on upcoming projects.
Understanding the lifetime value of the equipment is the best foundation for integrating new systems over the long term.