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10/27/2008

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Key Decision: Renting vs. Buying Equipment

Compiled by FacilitiesNet Staff

From spot-cooling equipment and personnel lifts to specialized grounds equipment and generators, maintenance and engineering departments often rely on rental equipment to meet unplanned or infrequent needs. But what happens when rental needs become more frequent and require more planning?

The challenge for managers is to decide the right time to stop renting and purchase a particular piece of equipment. By carefully considering the key components of both options, managers will be more successful in building a cost-effective case that supports their decision on renting vs. buying equipment.

Renting vs. Buying Equipment

When the time comes to plan major projects or repairs or to perform cyclical work, such as cleaning windows or high-voltage insulators, the answers to two questions figure prominently in the renting vs. buying decision: How frequently will crews need this particular equipment capability? How versatile must the equipment be?

The second question relates to the first. High-frequency use, of course, is related to payback. If crews need the equipment regularly enough over its estimated useful life to pay back the cost of not owning it, the case to purchase probably is strong. If renting the piece of equipment will cost as much or more than owning it, then it makes sense to buy it, get the benefit and save the incremental cost. Since the renting vs. buying equipment decision involves predictions of future events, it is important to plan carefully and thoroughly. Important information also includes past use patterns and an estimate of future use.

Versatility significantly can affect the first issue — frequency — because if managers can use the equipment on various types of jobs, that will increase the frequency of use and justify the purchase of the unit.

If either frequency of use or versatility is low, then the case for rent generally will be stronger. An exception is equipment that is not used often but is needed immediately in an emergency. Two examples of this situation are emergency generators for backup in power outages and portable coolers to prevent data-center equipment outages.

While managers might not be able to justify these purchases using a straight cost comparison, they should consider the potential for other losses, such as danger to health and safety or lost-opportunity costs that would occur if the equipment was not available.

So where is the dividing line between renting vs. buying equipment?

In short, buying tends to be the best option for general-purpose equipment used regularly for maintenance. Examples include fork lifts used daily for loading and unloading trucks and moving material, and aerial work platforms used for tasks at high elevations, including changing lamps in high-bay lighting fixtures, cleaning windows, washing walls and ceilings, servicing electrical-distribution systems, and painting.


Source:
Key Decision: Renting vs. Buying Equipment

 

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