Price Is What You Buy. Cost Is What You Own.

When organizations evaluate a capital purchase, the conversation often begins with price. How much will it cost to buy? How does that number compare with the alternatives? Does it fit within the approved capital budget?

But purchase price is only one part of the financial equation.

Price is what you pay to acquire something. Cost is what you continue to pay to own, operate and maintain it.

That distinction applies to almost any capital investment. A lower-priced vehicle that consumes more fuel and requires more repairs may ultimately cost more. A building system that is less expensive to install may consume significantly more energy. Technology purchased at a lower price may require greater support or more frequent replacement.

In each case, paying less up front doesn't necessarily mean spending less.

At Air Dynamics, we see this principle play out in industrial systems, where equipment may remain in operation for 10, 15, 20 years or longer. That makes industrial equipment a particularly useful example of how decisions based primarily on purchase price can affect lifecycle cost.

Energy, maintenance, consumables, labor, downtime, future modifications and equipment life can ultimately have a much greater financial impact than the difference between two original proposals.

Price is relatively easy to identify. It appears on the proposal or purchase order.

Lifecycle cost is more complicated because much of it occurs after the purchase. Energy consumption, replacement parts and consumables, routine maintenance, labor and downtime can continue for the life of an investment.

In an industrial setting, there may be less obvious costs as well. A system that exhausts large quantities of conditioned plant air, for example, may increase heating or cooling requirements. Equipment that wasn't designed with future production requirements in mind may eventually require new ductwork or piping, electrical upgrades, controls modifications or replacement equipment.

None of those expenses necessarily make the original proposal look more expensive.

They simply show up later.

Operating expenses repeat.

If one design requires more horsepower, more compressed air, more replacement filters, more frequent maintenance or more production interruptions, those expenses don't occur once. They can occur every day, month or year that the equipment remains in service.

Even relatively small differences can become significant when multiplied over 10, 15 or 20 years.

This is why evaluating industrial equipment solely on initial price can create a false economy. Capital savings achieved today may simply transfer expenses into tomorrow's operating and maintenance budgets.

Industrial air-handling and conveying systems can operate thousands of hours each year, making energy consumption an important component of lifecycle cost.

Airflow, pressure drop, motor horsepower, piping or duct configuration and system controls can all influence how much energy a system consumes.

The goal should not simply be to install the largest equipment available as a safeguard against insufficient capacity. Oversizing can have its own cost.

In an Air Dynamics airflow-optimization project, system-level engineering allowed total dust-collector airflow to be reduced by approximately 32%. Fan motors were right-sized from 11 HP to 7.5 HP, producing estimated electrical savings of approximately $10,150 annually across seven fans, in addition to reducing heating requirements and equipment wear.

The savings didn't come from buying cheaper equipment. They came from understanding what the process actually required and engineering the system accordingly.

Maintenance is another expense that can be difficult to see in an equipment proposal.

Filters, bearings, valves, pumps, motors and other components eventually require service. But the frequency and difficulty of that service can vary considerably depending on system design.

Maintenance cost includes more than replacement parts. It includes the people performing the work, accessibility of the equipment and, potentially, lost production while the work is completed.

An inexpensive component that requires frequent attention may ultimately cost more than a more durable design requiring less intervention.

The same principle applies to consumables.

In one Air Dynamics wet-scrubber project, redesigning an older air-pollution-control system eliminated replaceable fiberglass media and incorporated permanent media. Among the documented improvements was approximately $100,000 per year in avoided replacement-media expense, along with substantial reductions in maintenance and overall operating cost.

That recurring expense is an example of a cost that isn't necessarily obvious when comparing equipment prices.

The least expensive time to consider the entire system is often before it is built.

Equipment installed only to satisfy today's minimum requirements may become expensive to modify when production increases, processes change or additional equipment is added.

A retrofit may require more than another piece of equipment. New ductwork or piping, electrical service, controls, structural modifications, contractor mobilization and production shutdowns can all become part of the project.

The equipment itself may not be significantly more expensive later.

Everything required to install it can be.

Considering reasonable future requirements during the original engineering process can therefore affect lifecycle cost even if it increases the initial project price.

No.

Engineering isn't about adding equipment. In many cases, good engineering identifies opportunities to use less. That might mean less airflow, lower horsepower, shorter piping or duct runs, fewer unnecessary components, reduced filter loading or fewer consumables.

The objective is to understand the process well enough to determine what is actually necessary.

Sometimes that produces the lowest-priced proposal.

Sometimes the better lifecycle solution requires a greater initial investment.

Either way, price alone doesn't provide enough information to make that determination.

Instead of comparing only the bottom-line purchase price, evaluate what happens after each proposed system is commissioned.

How much energy will it consume? What routine maintenance does it require? Are there filters or other consumables that must continually be replaced? How difficult is the equipment to service? What happens to production during maintenance? Is the system sized for actual process conditions? Can it accommodate foreseeable changes?

Most importantly:

What will each alternative realistically cost to own and operate over its expected service life?

That is a very different question from asking which proposal has the lowest price.

Industrial systems are long-term investments.

The lowest purchase price can be attractive, particularly when capital budgets are tight. But moving an expense out of the capital budget doesn't necessarily eliminate it. Sometimes it simply moves that expense into energy, maintenance, labor or production budgets for years to come.

At Air Dynamics, our approach is Engineering First. Equipment Second.

We evaluate the process before determining the equipment because system performance, energy consumption, maintainability and lifecycle requirements are interconnected.

The goal isn't necessarily to engineer the lowest-priced system.

It's to engineer the system that makes the most sense to own.

For another perspective on why comparing industrial equipment solely by purchase price can be misleading, read our LinkedIn article, “The Price You Pay Isn't the Cost you Carry."