In preparation for the 2014 budget, many companies are making strategic decisions related to equipment investment. The decision often comes down to rent vs. own. Determining whether a piece of equipment will support multiple projects, considering interest rates, and other basic factors aside, long-term risk and opportunity considerations are a critical decision making variable. When making equipment investment decisions, market indicators and risk factors must be projected in order to assess return on investment. Work safety is an important risk factor to consider, but strategic decisions are based on a variety of factors.
One such factor is illustrated by Oil & Gas Industry growth.
“I never imagined when we acquired Beckwith Machinery in October of ’05 that oil and gas would become a significant contributor to our performance. We had no visibility to it even though the first oil well was drilled in Pennsylvania many years ago,” says Cleveland. “We certainly had no idea how big it would be for us. In the downturn of ’09 there was some talk about oil and gas. And then as 2010 rolled out, that’s what really brought us back from the doldrums. Pad development came on full force throughout 2010 and then a lot of drilling after that.
Source: Rental Equipment Register
Equipment companies in western and central Pennsylvania experienced a market shifting increase in rental demand in 2010 when the oil and gas fracking industry increased by 6 times. Shortly after the 2008 recession it was made public of a successful shale well drill that has placed the region at a level of production to rival Saudi Arabia. Projections continue to grow for the region as the country seeks a more effective energy plan.
Market Factors Affect Investment Decision Making for Multiple Industry Players
Presented with increased rental service activity as new contractors entered the market, many rental companies invested in new equipment to meet demand. Investing in drilling pads and related equipment allowed businesses such as Cleveland Brothers to overcome the recession and claim new market share.
In this case, the Rent or Buy decision could be viewed from multiple perspectives: Rental companies were challenged with the risk and reward of buying equipment to service the growing industry. Contractors new to the market or region were able to alleviate risk by renting equipment. Other existing contractors such as heavy/highway construction were provided the opportunity to expand into the market. The influx of oil and gas industry work also boosted the economy in other markets, such as infrastructure and hospitality, and increased the demand for related equipment such as light towers and work platforms.
Long-Term Strategic Factors and their Relationship to Work Safety
In addition to projected industry demand, long term strategic factors can include
- Advantages of new equipment with respect to technology and regulations
- Supply/demand and price points of rental equipment
- Labor availability and expertise
- Equipment maintenance and repair needs
- Capability to apply internal resources for unique needs
- Safety factors for aging equipment and as scale grows
Each of the above long-term strategic decision making factors can be applied to safety equipment investments. New equipment is typically equipped with more current safety features, thus purchasing or renting newer equipment will often provide safety risk management ROI. This will reduce the liability of lost worker time and the frequency of equipment repairs, freeing up resources for profit driving activities. Overall, the rent vs. own decision will be based upon a variety of industry factors, but business owners and executives should also factor in safety to optimally assess the ROI decision.