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A Conceptual Framework for Evaluating Capital Equipment Purchases
Author(s) -
Perry James H.
Publication year - 1987
Publication title -
journal of purchasing and materials management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.75
H-Index - 92
eISSN - 1745-493X
pISSN - 0094-8594
DOI - 10.1111/j.1745-493x.1987.tb00195.x
Subject(s) - capital equipment , computer science , audit , conceptual model , capital (architecture) , capital expenditure , risk analysis (engineering) , business , operations management , industrial organization , economics , finance , accounting , archaeology , database , history
Major capital equipment acquisitions present a series of unique challenges to a buyer. Factors that typically complicate the decision include technical operating differences in equipment, difficulties in defining specific operating requirements, and evaluation of the various cost factors that compose the life‐cycle cost for each equipment alternative. In this article, a conceptual model is developed to facilitate the evaluation of capital equipment alternatives in a consistent and structured fashion. The analysis involves both qualitative and quantitative data, including technical, logistical, and operating factors, as well as life‐cycle cost data. The article also presents a series of audit steps, or checkpoints, useful to a buyer in analyzing the underlying data—and it introduces an approach for dealing with the uncertainty in cost and benefit stream calculations which characterizes many major capital equipment acquisitions.