In recent years, the evolution of technology has changed the face of finance and how decisions are made. The total cost of ownership (TCO) simply defined as ‘the purchase price of an asset plus the costs of operation’ now encompasses a much more elaborate big picture than it did before.
It all begins with understanding the total long term cost of a solution. Services, maintenance contracts, and all the extra add-ons that can help to transform a simple piece of equipment into a smart, connected device.
These days, maintenance costs are just as likely to include software upgrades as they are to include fixing reoccurring errors on a printer. When a company installs a new million pound computer system, they must also understand the software needs, maintenance and help desk support requirements of that system in order to iron out the TCO. Software and servicing cost can be especially high with assets like copiers, information technology and medical equipment.
But there are a variety of software and services associated with all kinds of equipment. Diagnostics used to measure the performance of your trucks and trailers. Telemetric devices used to improve the performance of your fleet of cars and even the more basic machinery like printing presses have front end systems to run them. People are no longer standing behind machines to crank things out, they are running things via a controlled network.
This is why it is important to consider how an investment could affect your business financially and beyond. Will this machine replace a less efficient machine? What happens to my business if I don’t have this equipment? And if I do have it, what other costs are involved with running it?
When investing in a new assets a leading CFO expresses the importance of really understanding your investment, “TCO – total cost of ownership – is clearly part of the transaction’s bottom line”. Forecasting everything, right down to the bank conveyance, they pretty much know all the costs for the asset. They know the cost to staff it. They know the cost to maintain it, etc. They’re forecasting the full P&L, all capital investments they make.
Roy Royer, Head of Business Development for Europe with Somerset Capital, provides an example of how TCO can influence equipment decisions: “A good finance officer will look at two trucks that are five years old, and will say, ‘Our maintenance costs last year on these trucks was £10,000, and we were averaging 4.5 miles a gallon. If we get a new truck, the warranty will cover the maintenance costs. Therefore, those costs will go away, and we’ll have a payment of £1,900, but we’ll also get 7 miles a gallon versus 4.5 miles a gallon.” Similarly, if you do not intend to use an asset for the last 10%-20% of its life, why would you pay for it on day one and have the hassle of having to realise that equity when you no longer wish to use it.
At Somerset we consider our customers complete situation by assessing how things are now and how they could be 20 years from now and beyond. We use your specific company information to create unique leasing products. As an equipment specific lessor, we are able to offer you much more solutions using our in-depth equipment knowledge to make the TCO process seem straightforward and easy.