Life-Cycle Cost Analysis (LCA) helps fleet managers measure the long-term economic sustainability of their organization’s assets. When you calculate the total cost of ownership over the life of an asset, you not only improve your organization’s bottom line, but you also find the answer to the age-old question: should I hold onto or sell this asset? This minimizes the cost of investment and maximizes the profitability an asset will return.
From making the most of your budget to ensuring full compliance to different regulations, the implementation of life-cycle cost analysis provides many key benefits for organizations.
1.Make the most out of your budget
For many organizations and fleets, capital resources are scarce. Fleet managers can utilize LCA to examine the best ways to use their budget. An asset’s true cost is more than just the initial purchase price. With LCA, fleet managers can understand how much an asset really costs to own and operate. It serves as a long-term, exhaustive measurement of economic viability over each stage of the asset’s life-cycle.
The initial purchase price isn’t the be-all and end-all of the asset’s true cost; in fact, the acquisition of an asset is only a fraction of the total cost of ownership to take into account when weighing benefit cost vs. “do nothing” scenarios.
Depreciation, interest, maintenance, repairs, fuel and downtime are all examples of life-cycle costs that have an impact on an asset’s net value to an organization. LCA factors all of these additional costs to reveal the optimal replacement point for fleet managers to minimize investment, maximize profitability and limit an asset’s total cost of ownership.
2. Evaluate corporate policies
Did you know that life-cycle cost analysis can also benefit your corporate policies?
LCA serves as a tool to review the impact of corporate policy decisions on an asset’s life-cycle. For example, LCA can weigh the upfront cost of implementing an alternative fuel in a vehicle vs. the fuel savings over the life-cycle of the vehicle.
3. Ensure regulatory compliance
When fleet organizations don’t comply with regulations, there can be many costly side effects, including fines, downtime and even safety issues. When compliance is prioritized, these negative effects are avoided.
Regulations such as MAP-21 and the ELD Mandate directly affect the way in which fleets will be managed in the future. Utilizing LCA helps fleet managers prepare accordingly, as regulations often require reporting and analysis for compliance.
4. Evolve with asset management
Asset management is evolving from a more narrow maintenance management approach to a broader and more exhaustive asset management approach. Instead of managing only operating and maintenance expenses, there is an expanded emphasis on replacement, procurement and remarketing strategies to minimize life-cycle costs and maximize salvage value.
Performing a life-cycle cost analysis on your fleet vehicles help you better understand the true costs of your assets. To learn more about LCA, check out this quick guide on using LCA to optimize fleet and asset management.