How to really calculate total cost of ownership

2012-11-23 - Steve Ruddell, Global Marketing Manager for ABB motors and generators, writes about the total cost of ownership and the big role the cost not running - the direct cost of lost production due to a motor failure - plays during the total lifetime of a motor.
"It puzzles me that when purchasing electric motors, end-users often place greater importance on purchase price than on the total cost of ownership. In continuous process industries where downtime could cost more than $10,000 per hour, reliability should be the prime consideration. The impact of motor failure may also cause lost reputation; you can’t fulfill order books, and you may be subjected to penalties imposed by your customer.

So here is my suggestion: Calculate cost of ownership as the sum of purchase price, running cost and the cost of not running – the direct cost of lost production due to a motor failure. This last cost varies widely, depending on the industry, but typically averages $100,000 per annum.

A 45-kW, 4-pole, IE2 motor running 6,000 hours per annum at 94.1 percent efficiency may be bought for $2,200. Over 20 years, however, that motor may cost $2,633,160!

So why is so much time and effort exerted in purchase price negotiations, when the cost of ownership in a critical continuous process application is far more important? The motor industry should find a standard way of defining reliability so that users can compare products.

Finally, one last consideration is the manufacturer’s ability to predict when motors will fail. At ABB, we have developed amazing diagnostic tools that enable you to plan service interventions during scheduled plant outages."