Overview
These models manage the full life cycle of fixed assets: property, plant, machinery, equipment and other tangible investments. Below are the most common models and approaches we use to minimize fixed asset costs.
Toolkit
Models and approaches
LCCAsset life cycle analysis
- Description
- Accounts for every cost across the useful life of a fixed asset, from purchase to disposal, including acquisition, installation, operation, maintenance and final disposal.
- Application
- Cash flow projections, long-term cost analysis and preventive maintenance strategies reduce total cost over the life cycle.
MaintenancePreventive and predictive maintenance
- Description
- Maintenance plans minimize the cost of unexpected failures and extend the useful life of assets. Predictive maintenance uses sensors and technology to predict failures before they occur.
- Application
- Maintenance costs are usually lower when minor problems are found and fixed before they become major ones.
ReplacementAsset replacement model
- Description
- Determines the optimal time to replace a fixed asset by comparing the cost of keeping an old asset (maintenance, reduced efficiency) with the cost of acquiring a new one.
- Application
- Compares equivalent annual costs or the net present value (NPV) of the cash flows for keeping versus replacing the asset.
CBACost-benefit analysis
- Description
- Evaluates the financial costs and benefits of acquiring or keeping fixed assets, considering depreciation, taxes, operational efficiency and the productivity the asset generates.
- Application
- A detailed financial analysis confirms that investments in fixed assets return more than their acquisition and maintenance costs.
CapacityAsset capacity optimization
- Description
- Ensures fixed assets are used to their maximum capacity without incurring additional costs, often by optimizing production and inventory to avoid underuse or overuse.
- Application
- Process simulation and bottleneck analysis identify where asset utilization can improve.
MACRSAccelerated depreciation model
- Description
- Accelerated methods, such as the Modified Accelerated Cost Recovery System (MACRS) in the USA or the double declining balance method, deduct asset costs faster and reduce the tax burden in the first years of an asset's life.
- Application
- Tax costs fall in the short term, so we evaluate whether the strategy also makes sense long term for cash flow and financial costs.
LeasingOutsourcing or leasing of assets
- Description
- Instead of acquiring certain assets, a company outsources functions or uses leasing contracts to access assets without paying the full purchase cost.
- Application
- We compare the cost of acquiring versus leasing over time and choose the option that minimizes cost.
DowntimeRisk analysis and downtime costs
- Description
- Minimizes asset downtime, which can cause large productivity losses, by identifying and anticipating factors that could hurt asset performance.
- Application
- Data-driven monitoring and maintenance controls minimize unplanned downtime.
Going furtherThese models can be complemented with data analysis and artificial intelligence, which improve the accuracy of decisions about fixed assets and their associated costs.
