Evaluating the true cost of compressor ownership
If you’re about to invest in a new compressor, what criteria will you use in making your selection? The purchase price? The installation price? Maintenance requirements and cost? Energy efficiency? Hopefully it is all of the above and then some. As an asset with a ‘life-span’, the true cost of your compressor will not start and end with just the initial purchase price but will transcend across its entire life cycle. Considering the life cycle cost (LCC) of a compressor is therefore key if you want to truly understand the full cost of ownership. In this blog post we discuss LCC as an approach to assessing the true and total cost of a compressor.
Why the life cycle cost matters
Like other machinery, a compressor will not last forever. It will have a life-span. On average this is around 10 years however that will largely depend on a number of factors, not least the compressor technology, operating hours and operational environment.
Let’s take the example of an oil-injected rotary screw compressor with an expected 10-15 year life-span. It is useful to calculate the purchase costs over the average internal write off period of five years using the current interest rate. The pie chart below highlights how all the costs associated with operating this compressor breakdown over the first 5 years.
Interestingly, the initial capital investment accounts for only a small fraction of the total costs at around 15% and even the maintenance costs are significantly low at just 8%. But as you can see, 69% of the cost of ownership of a medium sized compressor over the first 5 years goes to your power bill!! It begs the question: what should guide your purchasing decision?
When you start to really see how the total cost of ownership breaks down into categories, and their overall weighting, you really start to understand why there are a number of other critical factors that you should consider when it comes to deciding which compressor to purchase, and not just the initial purchase price itself. Again, at 69% of the total cost of ownership - the energy efficiency of the compressor is pretty critical.
Evaluating the total life cycle cost (LCC) of a compressor or the ‘Cost Iceberg’
What the example above demonstrates is that the initial investment cost is just the tip of the ‘cost’ iceberg when it comes to the total operational costs. There is a concept called the ‘Cost Iceberg’ which highlights that above the surface are your visible costs at around 15% e.g. your initial investment cost. But, under the surface are your indirect costs at approximately 85% - such as maintenance and energy costs - and added together you get your true total cost of ownership (TCO).
So, applied to our example above, what we can see then, is that the initial investment cost actually plays a subordinate role in the overall cost of compressed air production. Evaluating other key areas, such as the compressor's energy efficiency and its maintenance requirements and costs, is essential if you want to truly understand the overall cost of operating the compressor. Any initial savings on investment cost for compressed air components, for example, may be greatly outweighed by higher energy costs.
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