Global

Calculating Total Cost of Ownership and profitability

The total cost of ownership (TCO) of an industrial diesel engine is vital to your overall profitability so it’s too important to leave to gut-feeling or vague estimates. In some applications, it can be complicated process, but it is worth getting right.

“If you can quantify how much you’re investing upfront, and how much an engine will cost over its lifecycle, then you’re in a much better place to evaluate if an engine is right for you or not,” says Arturo Garcia Aliaga, Application engineer, Volvo Penta. “Often the purchase price might only be 4-5% of its TCO, and the other 95% is fuel consumption. With that in mind it does not make sense to buy an engine that is 20% cheaper if it consumes 7% more in fuel. Nor does it make sense to buy a cheap engine if its poor reliability and durability costs you more in repairs and lost uptime.”

Often manufacturers can assist in the process and are best positioned to know how their products will perform. “We have tools where we can simulate the cycles that the engine will run – if they’re predicable and consistent – and through that simulate what the likely operational costs in fuel consumption will be,” explains Arturo.

Calculating TCO and what it can reveal
For customers working with gen-sets, Volvo Penta and our dealers can offer a TCO calculation tool, which enables users to enter data for their own unique operating conditions. This includes expected number of years of service, hours per year and loads distributions in percentage. The tool then utilizes its technical database to retrieve information such as service intervals and the expected maintenance and preventative repair costs. From this, the TCO tool calculates the engine’s expected lifecycles costs and breaks it down to cost per hour. Using the same operating data, it can offer comparisons with other engine models, makes and sizes, making it easier for customers to identify the most cost-effective engine specially for their application. Since it also includes CO2 emissions and efficiency ratings, it can be used to find a cleaner and more efficient engine too.

Below is an example of a comparison between four engines:

 

*For the given cycle (Fuel price 0,5 Euro/L, Operating 4000 h/year, 4 Years)

“Fuel savings can differ a lot between engines, and because it accounts for such a large portion of your TCO, a fuel-efficient engine can quickly pay for itself,” says Arturo.

Other applications
Gen-sets are simpler to calculate because the loads are consistent. For engines with variable loads and cycles, it becomes more complex. However, manufacturers should still be able to assist with information on how their engines should perform in certain circumstances and conditions. The more knowledge you have, the more accurate your TCO calculations and the better purchasing decisions you can make.

To access Volvo Penta’s online TCO tool for gensets, contact your nearest Volvo Penta dealership or partner.

Arturo Garcia Aliaga is Sales Manager and Application Engineer for Volvo Penta’s import business. He has a Masters degree in maintenance management, and has worked with Volvo Penta since 2007.