Equipment Appraisal Blog | Understanding Machinery Appraisals

How to Incorporate Equipment Appraisal in Asset Risk Management

Posted by Equipment Appraisal Services on Tue, Aug 08, 2017 @ 09:21 PM


When you're trying to develop a solid asset risk management approach for your company, it can seem as though you're facing more numbers and possibilities than ever. But have you considered incorporating your equipment appraisals into your process? Machinery valuation provides you with a range of information on your assets to help you decide how to best protect them. Here's how:

How to Incorporate Equipment Appraisal in Asset Risk Management

Risk management, by definition, is restricting the amount of risk you're subjecting yourself to, either personally or professionally. Asset risk management is an extension of that. Though it's a somewhat involved process, it helps mitigate risk to your business' assets, including your equipment. 

To determine how much money you're risking with specific operations, it's important to start by knowing how much your equipment is worth. Another area of knowledge you should keep in mind is the equipment's expected useful remaining lifespan. As an example, let's look at the value of a few different machines:

  • A new bulldozer that is financed and is costing the company a significant portion of their monthly income.
  • An older extruding machine that has been fully depreciated, but is expected to continue working for many more years to come.
  • An old metal lathe that still has some value but is nearing the end of its life cycle.

In these examples, you'd want to take very few risks with the bulldozer and moderate risks with the other two. Why would you worry about risks to a fully depreciated or worn out machine? Because the value they may still possess. It's much easier to guess at the value of the bulldozer, but the extruding machine may have value in its production role. The metal lathe may still have value if it's sold to pay off part of a piece of replacement machinery.

But with the two older machines, how do you determine value? This is one of the areas where equipment appraisal can be an extremely valuable tool to determining the equipment's exposure to risk and your overall asset portfolio. We've all seen equipment that has been fully depreciated using a standardized tax table, but continues to contribute to your business' profitability, whether it's an older spray foam truck, ancient table saw that just keeps going or an aging computer system that runs your ready mix plant.

When an equipment appraisal is performed by a certified appraiser, they use a range of methodologies that have been proven in legal, insurance, tax and financial industries. Because they deal with equipment on a daily basis, they're able to look at exactly what the equipment is, how widely it's used in other industries, the expected usable life span remaining and market conditions to calculate the exact equipment value. Though it may be more or less than what you see machinery sell for, the appraisal numbers will hold up because of the standardized calculations used by professional appraisers.

When you take the time to incorporate your equipment appraisal report into your asset risk management process, you'll quickly see results that help improve your company's overhead and profitability. Make sure the equipment appraiser you're working with is certified, to ensure you're getting a quality report that gives you a fair value for your assets, then use that information to build a better approach to risk management in your company.

Tags: asset risk management

How an Equipment Appraisal Can Help with Asset Risk Management

Posted by Equipment Appraisal Services on Fri, Aug 14, 2015 @ 08:30 AM


Can you think of any situation where an asset you own is free from risk? Financial assets such as stocks and bonds are subject to multiple risks such as company performance, a change in interest rates or a sustained market decline. Physical assets, such as machinery and equipment, are exposed to risks such as mechanical breakdowns, safe operation, and gradual obsolescence due to new technology.

To lower risk and help protect the assets you own, it is incumbent upon you to engage in asset risk management. While your financial advisor can manage your portfolio of investments to lower your exposure to excessive financial risk, they are not qualified to produce detailed reports that quantify risks associated with physical assets. Equipment appraisers provide the detailed information you need to develop a proper asset risk management plan for the machinery and equipment used in your business. 

Machinery and Equipment Appraisal 

If you are buying a business that includes expensive machines and equipment, you don't want to guess what that machinery and equipment is worth. If you already own a business and are trying to decide whether it is better to buy new or used equipment, you definitely need to know something about machinery and equipment values. A machine appraiser or equipment appraiser can do a detailed machinery and equipment appraisal on the used machinery or equipment you are considering. You can then use that appraisal to make an informed purchase decision.

Take the case of a developer who is looking to purchase a piece of heavy equipment. A new track-type tractor that is capable of bringing down a building or leveling rocky terrain, could cost millions of dollars. Even a used Caterpillar track-type tractor can run into the high six-figures. When investing in such an expensive piece of heavy equipment, you can not rely on the seller's price or your personal opinion to determine the worth of the used equipment. You can almost be certain that the seller had an independent machine appraisal before setting a sale price. If you do your own machinery valuation, you can do a better cost/benefit evaluation before deciding whether to buy used or new. 

Other Areas of Concern

The components of asset risk management include identifying, assessing, and prioritizing risk. Following is a list of some of the potential risks an equipment owner might face.

  • Breakdowns that can lead to production delays and lost revenue 
  • Liability in the event that someone is injured by faulty or unsafe equipment
  • Lack of adaptability and customization
  • Limited capacity that can limit sales growth and future opportunities
  • Challenges you face from competitors in your industry because they have more technologically advanced equipment (lower production costs, able to do more with less, etc.).

When you know the potential problems, you can manage risk. Each of these possible asset risks can be managed. Insurance can be purchased to cover the machinery, an injured worker, or the loss of business due to a forced shutdown of the machinery. An owner can develop contingency plans such as temporarily outsourcing production while crucial equipment is being repaired or replaced. Equipment can be inspected more frequently and the interval of time for regular maintenance can be shortened. You can plan your future equipment needs when the equipment appraisal report estimates the remaining useful life of your equipment.  

Take Control of All Your Assets

Unlike financial assets which you can track by simply looking at a monthly statement, the performance and value of physical assets are a little more difficult to assess. You need expertise and experience to evaluate the worth of your equipment. Qualified equipment appraisers can accurately determine the current value so you can better manage those physical assets.

Tags: equipment appraisals, asset risk management