Not the bill, but the hourly cost over the remaining life
The size of the repair bill does not answer the question of whether to repair or replace a machine. What needs to be compared is the hourly cost of the repaired machine over its remaining life against the hourly cost of the new machine over the same period. The answer to when a machine should be replaced is here too: when the hourly share of the repair exceeds the hourly share of the new machine. The gap between them is often narrower than expected and depends on a few inputs.
When an engine or transmission overhaul quote lands on the table, the first thing that comes to mind is to compare the amount with the machine's value. In the field, threshold rules circulate that recommend replacement once the repair cost exceeds a certain percentage of the machine's value. In the example below, that percentage is 60 percent, and repairing still comes out cheaper per hour. The repair cost is paid once and spread over the remaining life; the capital cost of the new machine, on the other hand, keeps running every year.
Seeing the trend through the quarterly hourly cost
A major repair decision is fed not by a single invoice but by the trend of the machine's last two years. The table below gives an example of a machine's last four quarters. Because the cumulative average rises slowly, the machine looks average for a long time; the quarterly value, however, shows earlier that the curve has turned.
In the last quarter the hourly cost has risen to 330 TL, while the cumulative average has stayed at 241 TL. The drop in working hours from 550 to 400 is the second face of the curve: when a machine works less because of downtime, the fixed costs are divided by fewer hours. How to break the cost items down is explained in the maintenance cost guide; here only the trend is read.
Quarterly and cumulative hourly maintenance and repair cost of the example machine (example)
| Quarter | Maintenance and repair cost | Working hours | Quarterly per hour | Cumulative per hour |
|---|---|---|---|---|
| Q1 | 95,000 TL | 500 | 190 TL | 190 TL |
| Q2 | 118,250 TL | 550 | 215 TL | 203 TL |
| Q3 | 125,000 TL | 500 | 250 TL | 218 TL |
| Q4 | 132,000 TL | 400 | 330 TL | 241 TL |
Downtime is also a cost item
There are two items that do not appear in a repair quote. The first is the replacement machine brought in while the repair is under way, or the work that is lost. The second is that failures become more frequent on an older machine: MTBF gets shorter, MTTR gets longer and availability drops. The formulas for the three measures are in the MTBF and MTTR guide; for the decision, this is enough: a machine whose availability has fallen compared with its peers in the same group may keep that drop after the repair too.
In Reper Axis, the availability report gives downtime, MTBF and MTTR by machine and by group; putting a machine side by side with its group average is done from this report. The risk score combines indicators such as repeated faults, overdue maintenance and oil analysis into a single daily score, and missing data lowers the confidence level. The score does not make the decision; it ranks which older machine should be examined first. If the same fault is coming back for the third time, the question may not be a major repair but the root cause; see the root cause analysis of repeated faults guide for how to tell them apart.
Second-hand value and scrap value are two separate figures
Three values are needed in the calculation: the resale value of the machine as it is today, the value at which it will be sold after being repaired and used for its remaining life, and the value of the new machine at the end of the same period. Scrap value is separate from these and is often the lowest of them; if you are going to dismantle the machine for parts, write it down as a separate item. Do not guess the values: get written quotes from at least two separate buyers or dealers and, if needed, an appraisal report.
Before getting the repair quote, check the warranty and service contract records in the machine register. If the warranty or service contract is still running, part of the bill may not fall to you; the register raises an alert for records approaching their end. Marking the work covered by warranty separately is also necessary, because that work shows not the machine's real rate of ageing but the part paid by the manufacturer. The low maintenance cost of a new machine in its first years also comes partly from the warranty; the estimate of 100 TL/h in the example should therefore be tested against the coverage in your own contract.
Worked example: engine overhaul or a new machine
All numbers are examples. The engine of a 22-tonne crawler excavator at 9,000 hours needs an overhaul. The quote is 900,000 TL and the work will take 20 days; during this time a replacement machine of the same class will be rented at 13,000 TL per day. The machine can be sold today as it is for 1,500,000 TL. After the repair it is assumed to work 2,000 hours a year for 3 years, that is 6,000 hours, and to be sold at the end for 800,000 TL. The repair bill is also money tied up in the machine: the initial tied-up capital becomes 1,500,000 + 900,000 = 2,400,000 TL.
The alternative is a new machine at 7,500,000 TL; the value of the new machine after 3 years is assumed to be 4,000,000 TL. The old machine's resale value of 1,500,000 TL has already entered the calculation on the repair side: keeping the machine means giving up that money, and the depreciation and financing lines start from this value. That is why the sale price is not deducted again on the replace side; if it were, the same 1,500,000 TL would be counted twice. The financing rate is taken as 15 percent on both sides. Fuel, operator and insurance are assumed to be the same in both options, so they are not in the table; for the new machine, the need for a replacement during the delivery wait is also ignored, an assumption that slightly favours replacement. The depreciation and financing calculation for the new machine is the same method as in the buy or rent guide.
Cost of the two options over a six-thousand-hour period (example)
| Item | Repair | Replace |
|---|---|---|
| Repair bill (parts, labour, external service) | 900,000 TL | None |
| Replacement machine during the repair | 20 days × 13,000 = 260,000 TL | None (assumption) |
| Depreciation | 1,500,000 − 800,000 = 700,000 TL | 7,500,000 − 4,000,000 = 3,500,000 TL |
| Financing: average capital tied up × 15 percent × 3 years | (2,400,000 + 800,000) / 2 = 1,600,000; result 720,000 TL | (7,500,000 + 4,000,000) / 2 = 5,750,000; result 2,587,500 TL |
| Maintenance and repair (hourly estimate) | 6,000 × 270 = 1,620,000 TL | 6,000 × 100 = 600,000 TL |
| Total | 4,200,000 TL | 6,687,500 TL |
| Cost per hour (total / 6,000) | 700 TL | about 1,115 TL |
Reading the example and the remaining working hours
The repair bill is 60 percent of the machine's current resale value, and yet repairing comes out about 37 percent cheaper per hour. The fixed share of the repair, that is the bill plus the replacement rental, is 900,000 + 260,000 = 1,160,000 TL; divided by 6,000 hours, this is about 193 TL per hour. The hourly share of the remaining items, that is depreciation, financing and maintenance and repair, is about 507 TL. Added together, they make 700 TL.
This split also shows which input to watch. The repair's fixed share of 1,160,000 TL is divided by the remaining working hours of the repaired machine; as those hours shrink, the hourly cost of the repair rises. Even so, giving a single break-even hour figure would not be correct: when the working period changes, the end-of-period resale values of the two options, the financing period and the maintenance cost also change, and the calculation has to be rebuilt with these inputs. The remaining-hours estimate is made by looking at the scope of the repair from the service that gave the quote, the written warranty period, and the condition of the machine's other systems such as the transmission, hydraulics and undercarriage; keep in mind that once the engine is renewed, another system may be next in line.
The comparison window also affects the result. A three-year period covers the first years in which the new machine loses value fastest, while the repaired machine is already near the end of its life. If you plan to keep the new machine for many years, the right comparison is the annual cost of each option over its own expected life: the remaining three years of the repaired machine are placed next to the annual cost of the new machine spread over its whole life. In this calculation the hourly cost of the new machine generally falls and the gap between the two narrows.
Sensitivity: which input can flip the result
In each row below, a single input was changed and the rest were left as in the example. In this example no single change flips the result: a higher maintenance estimate, doubled downtime and an end-of-period value of the new machine raised to 5,000,000 TL all narrow the gap, but repairing stays cheaper. For break-even, the maintenance and repair expense after the overhaul would have to rise to about 685 TL/hour or the repair duration to about 210 days; the value of the new machine after three years would have to be about 7,200,000 TL, almost its purchase price, which is not realistic. The remaining working period can also change the result, but as explained above, that scenario must be calculated separately together with the end-of-period values and the financing. Because the repair quote is received in writing, it is the most concrete item, yet its scope may widen after the teardown; ask for it to be written in the quote what will happen in that case. The real time goes into the second-hand values that can be obtained in writing and the remaining-life scenarios.
Hourly cost and result when an input changes (example)
| Input | Change | Repair (TL/h) | Replace (TL/h) | Result |
|---|---|---|---|---|
| Base example | No change | 700 | 1,115 | Repair |
| Maintenance and repair after the overhaul | 270 → 350 TL/h | 780 | 1,115 | Repair |
| Downtime during the repair | 20 → 40 days | 743 | 1,115 | Repair |
| Value of the new machine after 3 years | 4,000,000 → 5,000,000 TL | 700 | 985 | Repair, the gap narrows |
| Maintenance and repair after the overhaul (break-even) | 270 → 685 TL/h | about 1,115 | 1,115 | Break-even |
The records to have before the decision meeting
The records that make this calculation reliable must be per machine: maintenance, fault repair, external service and tyre costs posted to the machine, downtime recorded with its start and end, and working hours kept regularly. As a recommendation, build up at least 12 to 24 months of per-machine records before the decision; a period shorter than a year is under the influence of a single major failure.
In the cost module, the machine card shows the monthly and cumulative cost and the machine and project report can be exported to Excel; the items are listed on the cost management page. Working hours come from the telemetry account on supported connections, from an Excel meter import if there is none, and finally from entry by phone. For a machine with an incomplete history, you can fill in the ready template with the old faults and work orders and upload it; the system shows a preview before saving. If you want to build the hourly calculation for the new machine with your own inputs, the hourly cost calculator gathers the items from depreciation to the operator on a single screen.
