Repairing and Replacing Equipment

April 13, 2006

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Very few items of equipment, if any, have an infinite working life. Well, maybe you could expect a paperclip to last forever, but then again it would probably get lost at some point.

Accordingly, you can generally assume that the equipment that you use in your business is going to break down eventually. This, in turn, will require you to decide whether you should repair or replace the equipment. You may also face an equipment replacement decision whenever newer models or makes of your current equipment arrive on the market.

In many respects, the repair-or-replace decision is similar to the decision of whether to acquire a given item of equipment in the first place. The first question you should probably ask yourself is whether your business in fact still needs the equipment that you're thinking about repairing or replacing. Will the repaired or replacement equipment make your business more profitable, efficient, or productive? If not, perhaps you should just consider the existing asset to be unproductive and eliminate it.

Let's assume your experience indicates that the equipment has continued utility to your business. How then should you determine the proper course of action? Well, a thorough cost-benefit analysis of each of your options might prove useful. For example, if you were trying to determine whether to repair or replace a broken item, you would compare the costs and associated benefits of repairing the item versus the costs and associated benefits of replacing it.

In some cases, however, factors outside the straight economic analysis of costs and benefits will (and should) drive your decision. For example, you may conclude that you just can't afford the potential downtimes associated with your older equipment breaking down, so you choose to replace the equipment, even though your direct repair costs would be minimal. Or, your concerns about the health and safety of you and your employees may lead you to replace an existing item with a newer, safer model, even though it's unlikely that you'll realize any increased revenues or cost savings from using the newer equipment.