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Why Total Cost of Ownership is so important

Understanding total cost of ownership (TCO) of an industrial diesel engine will help you make better investments and purchase more reliable engines, but there are multiple factors that need to be taken into consideration. To help you better manage your TCO, Volvo Penta has created a series of articles on the different ways you can get more out of your engine.

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“When calculating TCO there are some obvious costs such as fuel consumption, servicing and maintenance,” says Per Karlsson, Application Engineer at Volvo Penta. “But there are also less obvious factors that can be overlooked, such as resale value, accessibility, reliability, durability, and availability of spare parts. For a complete TCO, you need to factor in all costs – direct and indirect – from the initial purchase until it is scrapped or resold.”

When calculating the total cost of ownership, there is also a tendency to focus on the direct visible costs and overlook some of the indirect costs that can be found in the smaller details. Generally speaking, total cost of ownership includes:

  • Fuel consumption: This is obviously a very important parameter and can tell you a lot. For some applications and industries fuel can make up more than 90 per cent of the lifetime cost of an engine. Getting a clear picture of how much fuel different engines consume is often vital, however it’s also important to factor in some of the less obvious costs, such as time and logistics involved in refueling. This will be explored in our upcoming article ‘The hidden costs of fuel’.
  • Service costs: Knowing the service intervals for different engines can not only let you plan services better, but also compare them to each other. Apart from the direct cost of servicing, spare parts, maintenance and repairs, there is also the transportation and distance to a dealership. This can be significant for machinery in inaccessible locations, such as forests and mines.
  • Uptime and productivity: Breakdowns and downtime are costly for any business so sometimes paying more for a durable and reliable engine will save you a lot more in the long run. Splurging on genuine parts can often be more cost-effective long term.
  • Initial purchase price and resale value: The difference between the two has a huge impact on your TCO. A premium product might not necessarily cost more if it can also be sold for more on the used engine market. This is why maintaining resale value is so important to improving TCO. Follow our series to learn how a happy engine is a cleaner, more efficient engine, and that makes for a happy business.

Per Karlsson is a Sales and Application Engineer at Volvo Penta, who specializes in technical issues with OEMs and end customers. He has been at Volvo Penta for ten years, where he has worked with both the marine and industrial segments. Prior to joining Volvo Penta, Per has also worked with maintenance and aftermarket diagnostics in a wide variety of industries including shipping, construction, forestry and agriculture industries.