How to Determine & Extend the Useful Life of Assets
If you’re wondering how to determine the useful life of assets, you’re probably concerned about how long your assets will last, will their value to the organization rank higher than their cost, and of course, over time, what will they be worth from a financial perspective. This information is critical to consider, particularly considering how these timeframes will affect your P&L. However, the useful life of assets varies, depending on the asset type, the manufacturer, and the care given.
This article will introduce you to basic concepts, provide practical advice on determining your asset’s typical useful life and possibilities for extending its lifespan; and explain why CMMS software, such as LLumin’s CMMS+, can be essential in improving asset management and equipment performance and lifespan.
Understanding the Useful Life of Assets
Before getting started, it will be essential to clarify what the term ‘asset useful life’ really refers to. This term refers to the expected period when an asset is expected to remain functional and economically viable for use.
This information becomes necessary when balancing financial budgets or planning maintenance tasks. It will also impact an asset’s depreciation rate. Simply put, you want to consider this information before you commit to buying new and expensive equipment – especially if it’s business critical.
Relationship Between Useful Life and Depreciation
Depreciation is an accounting term and method for allocating an asset’s cost over its useful life. It’s similar to spreading the cost of your asset out over the time you’ll use it. All assets will age and become less effective over time. The more you use your assets, the less valuable they become. The drop in value does not occur all at once. This connection is critical for financial planning and asset valuation.
While there are several formulas for calculating depreciation, the Straight-Line Depreciation method is one of the most commonly used. It’s simple to understand and clearly shows how useful life affects the financial treatment of assets over time.
Calculating the Useful Life of Assets
As previously mentioned, determining the useful life of your assets will vary. For example, heavy machinery used in construction will have a different useful life than IT equipment in an office space. Because of this, the manufacturer will determine this information and play a role in providing it to consumers.
Manufacturers will consider material quality, wear and tear under standard operating conditions, technological advancements, and other factors to provide reliable baselines for the public to start their own calculations, which can then be adjusted based on company-specific usage patterns, maintenance schedules, and environmental conditions.
We’ve provided some practical information to help you determine the useful life of assets. You’ll want to consider the following below:
- Historical Data: Consider similar assets’ lifespans.
- Manufacturer Guidelines: Always reference manufacturer guidelines and specified expected asset life.
- Operating Conditions: Consider the environment and frequency of use of your assets.
- Maintenance Practices: Regular maintenance can extend lifespan.
Strategies to Extend Asset Useful Life
Preventive maintenance can help you avoid unexpected breakdowns.
Updating components can enhance their performance and lifespan.
Use advanced tools to improve asset management.
Read our latest blog “How to Create an Asset Management Policy” and get the tools and information you need to create an effective asset management policy.Read Blog
LLumin’s CMMS+ Software in Asset Management
Using LLumin’s CMMS+ software can make stark improvements to how you track and maintain company assets. If you’re concerned about the useful life of assets, depreciation, and extending the lifespan, consider improving how you manage and maintain them.
LLumin’s CMMS+ software can provide the following benefits:
- Automated maintenance scheduling to ensure regular maintenance
- Real-time monitoring that tracks asset performance and alerts staff of potential issues
- Advanced data analysis that provides valuable insights for better decision-making
- Predictive maintenance which can reduce unplanned downtime and extend asset life
- The tools necessary to take a strategic approach to asset management
Extend the Useful Life of Assets With LLumin
Determining the useful life of assets, their depreciation rate, and seeking out manufacturer’s recommendations will only play one part in getting the most out of company assets. Using advanced maintenance management tools can increase the likelihood that assets will continue to perform at peak levels for longer periods of time. With the help of LLumin’s CMMS+, you can improve the efficiency and cost-effectiveness of your current asset management practices.
Getting Started With LLumin
LLumin develops innovative CMMS software to manage and track assets for industrial plants, municipalities, utilities, fleets, and facilities. If you’re questioning ‘what is a work order’ and how these documents can be best used to support successful maintenance operations, we encourage you to schedule a free demo or contact the experts at LLumin to see how our CMMS+ software can help you reach your efficiency and cost-cutting goals.Take a Free Tour