David Krause1 · The wrong question and the right one
The 5-axis CNC machining center in cost center 210 is eight years old. Spindle, ball screws and guideways are worn, and the manufacturer offers a general overhaul. The alternative is a new machine at the replacement value of €669,000 (Chapter 7).
Whoever sets the repair price against the purchase price compares an outlay for five years with one for thirteen. The two only become comparable as cost per year: what does it cost to run the old machine for another five years — and what does the new one cost on average over its useful life?
2 · What does not belong in the calculation
| Figure | Why it is tempting | Why it does not count | What counts instead |
|---|---|---|---|
| Book value of the old machine | “it is still on the books” or “it is written off, it costs nothing” | the past — no decision can change it any more | the residual value: what a dealer pays today |
| Past repairs | “we have already put so much into it” | also the past | future maintenance costs |
| Machine hour rate of the old machine | low, because almost fully depreciated in the accounts | imputed depreciation continues on replacement value (Chapter 6) | the additional costs and hours of each alternative |
3 · Worked example: annual costs of both routes
Annuity factor = i / (1 − (1 + i)−n) · at 5.5 % interest: 0.2342 for 5 years, 0.1097 for 13 years
| Item | Keep running, 5 years | Replace, 13 years |
|---|---|---|
| Outlay today | overhaul €85,000 + forgone sale proceeds €140,000 | €669,000 |
| Residual value at the end | €50,000 | €60,000 |
| Maintenance per year | €30,000 (today €22,000) | €14,000 |
| Energy per year | €30,435 | €25,870 (−15 %) |
| OEE · productive hours | 78 % · 3,393 h | 82 % · 3,567 h |
| Item | Keep running | Replace |
|---|---|---|
| Capital charge overhaul (€85,000 × 0.2342) | €19,905 | — |
| Capital charge machine | €23,826 | €70,098 |
| Maintenance | €30,000 | €14,000 |
| Energy | €30,435 | €25,870 |
| Annual costs | €104,166 | €109,968 |
The new machine costs €5,802 more per year — not €584,000 more, as the comparison of repair and purchase price suggests. Nor is the old machine “paid for”: whoever keeps it forgoes €140,000 in sale proceeds, and that tied-up capital costs €23,826 a year. On the cost side alone the calculation narrowly favors the overhaul.
4 · The hours decide
At 82 % OEE the new machine delivers 174 more productive hours a year. What they are worth depends on whether the cost center can fill them — the same distinction as in Chapter 13.
| Situation of the cost center | Valuation | Value per year | Replace versus keep |
|---|---|---|---|
| Free capacity — the hours stay empty | no order, no contribution margin | €0 | €5,802 dearer |
| Bottleneck — the hours are filled | contribution margin €179.00/h | €31,146 | €25,344 cheaper |
The same machine, the same quotations, two opposite answers. A replacement investment is therefore never just a maintenance question: it needs the order outlook for the coming years as an input.
5 · Where the decision tips
| Variable | Break-even at | Reading |
|---|---|---|
| Additional hours filled | 33 hours a year | a fifth of the 174 hours already justifies replacement |
| Price of the overhaul | about €110,000 | above that, replacement is cheaper even with free capacity |
| Unplanned failure | €15,654 per event | one additional failure every three years almost offsets the €5,802 (Weibull article) |
| Interest rate | — | a rising rate makes replacement dearer than it does the overhaul (yield curve) |
After five years the same question comes up again — then with a thirteen-year-old machine whose control may no longer be supported. The calculation compares five more years of operation with the average of the new machine; it says nothing about what the overhaul is still worth afterwards.
6 · Where the figures come from
| Input | Source | Who provides it |
|---|---|---|
| Price of the overhaul, scope, downtime | manufacturer's quotation | maintenance |
| Residual value today and in five years | dealer quotation, used-machine market | purchasing |
| Maintenance costs over time | cost center, failure history | maintenance, controlling |
| OEE old and new | machine data; check manufacturer claims critically | production (Chapter 14) |
| Contribution margin per hour, utilization | contribution margin accounting, order forecast | controlling, sales |
| Interest rate | imputed interest rate | controlling |
7 · Checklist
- 1Are annual costs compared — not repair price against purchase price?
- 2Is the residual value of the old machine included as tied-up capital, not its book value?
- 3Are the future maintenance costs of the old machine realistically higher than today's?
- 4Are the additional hours valued by utilization — free or bottleneck?
- 5Is the failure risk of the old machine expressed in euros?
- 6Is it clear what happens once the overhaul has run its course?
