Why does total cost of ownership for facilities matter?
It’s widely known that using energy-efficient maintenance products in a facility can reduce environmental impact, but there’s another reason for facilities to focus on sustainability: their bottom line, especially when it comes to labor costs.
Learn what total cost of ownership means, how to calculate it for your facility and why it matters.
What is total cost of ownership?
Total cost of ownership, or TCO, takes into account not just purchase and replacement costs, but also the amount of energy used, labor costs and potential downtime.
Choosing the most energy-efficient products for a facility goes beyond just buying products that say “green” on the label. Instead, facility and operations managers should take a holistic approach to sustainability by considering the TCO when selecting products to incorporate into their day-to-day operations.
You can lessen the blow of maintenance and repair costs through the labor savings yielded by products with a lower TCO. By paying attention to TCO instead of upfront costs, facilities can improve their bottom line by maximizing labor resources while lowering their environmental impact.
How to calculate TCO and reduce waste in your operations
When trying to determine how much a product will actually cost, it’s not as easy as comparing one purchase price to another. The upfront purchase price does not factor in the amount of energy the product itself requires in order to operate, or the amount of labor associated with installing or maintaining the product. Opting for products that require less maintenance can help reduce these expenses.
The factors that determine a product’s TCO can vary from one type of product to another and from one facility to another, but here's a total cost of ownership formula to use as a baseline:
Total cost of ownership = purchase price + replacement costs + energy used + labor cost + downtime
By breaking down costs through the examination of indirect expenses, it’s easy to see that a product with a lower upfront price could actually cost more over its lifetime of use if the energy and labor costs associated with it are significantly more than another product with a higher upfront price.
This basic TCO formula can be applied to a range of facility maintenance products. It’s safe to say that water heaters, light bulbs, thermostats and cleaning supplies are included in facility operations, so we will use those as examples to perform some TCO analysis.
TCO and tankless water heaters
Many facilities rely on their water heaters for more than just providing warm water to their bathroom faucets and break room kitchen sinks. Hospitality facilities like hotels and spas, or healthcare facilities like hospitals and nursing homes, and of course, restaurants and other food service facilities are examples of businesses that function on the reliable availability of warm water.
It’s best not to overvalue the typical lower upfront costs of a regular tank water heater because there is a substantial drop-off in durability when compared to a tankless water heater.
If a restaurant buys a tank water heater due to its cheaper initial price tag, and it breaks, the restaurant basically has to close until it can wash dishes again. Due to the higher likelihood of another break, the costs over time of opting for a tank water heater could eventually surpass the upfront cost of a tankless water heater.
So, while a tank water heater might be cheaper to buy and install, it does not provide the long-term reliability of a tankless water heater—making the TCO of a tankless water heater far more favorable in comparison.
TCO and light bulbs
Lighting costs are a significant operating expense for facilities, and the type of light bulbs used in a facility directly impact that expense. Today, there are plenty of light bulb options to choose from, but only one type shines in terms of TCO—and that’s LED.
While it might be tempting to buy the light bulbs with the lower upfront cost, the cheaper option will likely cost significantly more in the long run.
Not only do LEDs use a fraction of energy compared to the other light bulb types, but they also cost less to operate and last years—if not decades—longer than the other bulbs. LEDs can last anywhere from 6,000 hours to 25,000 hours which means far, far less money spent on replacements and much lower energy costs.
In fact, LED light bulbs can cost almost 15% less in annual energy than other bulb types. Considering labor costs and worker safety, it’s clearly worth it to pay for the LED that may cost more up front than the bulb with the shorter lifespan and cheaper price tag.
TCO and thermostats
Heating and cooling costs are another significant operating expense for facilities. Fortunately, that expense can be managed by installing the right thermostats.
For facility managers who are trying to decide whether it’s worth upgrading to smart thermostats, considering TCO can help with that decision. Because smart thermostats have been on the market for a while now, manufacturers now offer them at different price points that allow them to compete with some standard programmable thermostat models.
Depending on the brand, smart thermostats can save anywhere between 10% to 20% or more in energy costs when installed correctly. Given that the amount of effort required to install a smart thermostat would be roughly the same as installing a standard programmable thermostat, labor costs wouldn’t vary significantly.
In terms of TCO, it is worth it to invest in smart thermostats for the overall energy savings that they yield throughout their lifespan.
TCO and cleaning supplies
Because cleaning products are something that would be on a standing MRO supply order and are used regularly by maintenance staff, the indirect costs associated with these products have a more apparent impact on labor and operating costs.
For example: It’s common for diluted cleaners to have a more appealing unit price than concentrated cleaning solutions made from quality ingredients. When it comes to effectiveness, however, the diluted option can end up straining resources.
Not only do concentrated cleaners come in less packaging that would otherwise end up in a landfill, they can also help your maintenance staff work more efficiently. A high-quality cleaning solution will cut the amount of time and effort it takes to clean a soiled surface compared to a diluted solution.
By opting for the concentrated cleaner, you can maximize labor hours. Check out other tips to help you implement a sustainable cleaning system in your facility.
Lower your facility TCO with Ferguson
There are not only financial savings through reduced labor expenses, but also an environmental benefit to having a sustainable facility. By examining TCO, you can find ways to reduce your environmental impact while lowering your labor and operating expenses. Discover how Ferguson Facilities Supply can help you keep your facility running at full speed.