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Posted: 01/08/2016

How to Evaluate Your Opportunity Costs

Bobcat Compact Trakc Loaders

Large businesses can justify dedicated technicians, up-to-date tools, and ample shop space to maintenance machines and equipment. But smaller operations may assign that work to their machine operators to handle after hours with whatever tools and time they can find. It might offer short-term savings, but is doing your own maintenance really the most cost-efficient plan for your company?

It’s important to evaluate who can most cost-effectively service your compact excavators and loaders — you or your local dealer. Here’s a quick, two-step calculation to help you choose the right maintenance plan for your company:

  • Step 1: Determine the maintenance intervals for your machine.
  • Step 2: Calculate the opportunity cost for your machine.

Maintenance intervals

Proper maintenance is the key to extending the life of your equipment.

Manufacturers have recommended service intervals that are specific to each machine model. Can you maintain each machine efficiently at your company, or should it be done by trained dealership technicians who have the time, tools and know-how?

Opportunity cost

An opportunity cost calculation is the analysis of savings gained from performing your own maintenance versus the revenue that could be generated from being on the job longer. Opportunity costs can vary based on rates and accurate time estimates.

To calculate your opportunity costs, determine the number of hours it will take you to perform the maintenance and compare it to how much you could have earned on a jobsite during that time.

For instance, if it takes four hours to change the oil in your compact excavator and you charge customers $150 an hour for excavation work, that’s $600 of lost opportunity costs. Now consider that an oil change by the dealership might take only two hours to complete at $100 per hour.

It may not make sense to take a machine out of service for half a day when a dealer can perform maintenance in significantly less time. Using the dealership is appealing because it may return the best opportunity cost, be the most convenient for you and your company, and reduce downtime.

The bottom line with maintenance decisions is to properly calculate the value of your time and the level of your expertise. You may determine that by staying on task with billable projects when work is available, you could afford to outsource maintenance and come out ahead financially.

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