Most departments have the experience to know when it's operationally time to replace an apparatus. They get a gut feel when the apparatus is out of service too much, repairs start piling up and replacement parts become harder and more expensive to find.
But departments rarely have the sufficient knowledge needed to financially assess the repair or replace analysis. All of this means they may operationally continue to use, repair and endure an apparatus even though it financially makes sense to replace the vehicle.
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So what factors are needed to make the financial analysis of repair versus replace decision? There are thee main factors involved that departments should consider:
1. Operational cost factor This factor involves measuring the annual financial cost of keeping an older apparatus. These costs include repairs & parts, excess fuel (older vehicles are less fuel efficient), insurance and other out-of-service costs such as apparatus rental.
2. Intangible cost factor Most departments overlook the hidden costs of having older apparatus. The primary intangible cost is a safety cost. How much do injuries involving old or undependable apparatus cost you? This cost is usually assessed in one big bill. In other words, you don't "pay" an annual safety cost. When something bad happens, you get hit with one big lawsuit, insurance premium hike or other cost. It’s also important to assign a value to the intangible costs to recruitment or morale by having an older apparatus. Does it cost more to recruit members — or could you even lose some — because they are not proud of the apparatus they will be using?
3. Financial cost factor This is also hard to judge by most departments but is essential to have an accurate financial analysis of the retain/replace decision. Do you still owe loan payments on the apparatus under consideration for replacement? A bigger and rarely considered financial cost is the lost buying power of waiting. Apparatus costs have risen dramatically over the past few years and significantly affect this calculation. These costs must be netted against new apparatus loan payments or lost savings earnings if you pay cash for the new apparatus.
Of course, just knowing that financially it makes sense to replace your apparatus doesn’t mean that you automatically replace your truck. There may be several operational reasons to continue with the older apparatus.
But for those departments that have a nagging feeling that an apparatus should be replaced, these factors will help you demonstrate the financial analysis of keeping or replacing the apparatus to your board or council.
John R. Hill is an apparatus budgeting consultant for Envizion Financial, which helps fire departments avoid common financial mistakes that are made in the apparatus purchasing process. John also writes a weekly Web site column on FireFinanceGuy.com. To contact John, e-mail firstname.lastname@example.org.
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