Module 6 · Lesson 2
Total Cost of Ownership & Payback Period
Advanced Motor Control & Drives Mastery — Book 3 of the Electrical Series
Why this lesson matters: Lesson 1 gave you the energy savings number. That number alone doesn't justify a
purchase decision — it has to be weighed against upfront cost, installation, and ongoing maintenance to get a
real payback period. This is the calculation that turns an energy-savings estimate into an actual business case.
1. What Belongs in Total Cost of Ownership — Click to Explore
Select a cost category above.
Field mistake seen often: A VFD proposal compares only the purchase price of the drive against the
do-nothing option, omitting installation labor, panel modifications, commissioning time, and the training needs
from Module 5. The "surprise" costs that show up during the project erode confidence in future proposals even
when the underlying energy case was sound.
2. Payback Period Calculator
3. Reading the Payback Number Correctly
| Payback Period | Typical Interpretation |
|---|
| Under 2 years | Strong case, usually easy to justify even with conservative assumptions |
| 2-4 years | Reasonable case for most industrial capital projects, especially if the equipment's service life comfortably exceeds this |
| 4-7 years | Requires more scrutiny — verify assumptions carefully (Lesson 1's hours-at-reduced-flow caveat matters even more here) and consider whether the equipment will still be in service long enough to realize the full payback |
| Over 7 years | Energy savings alone may not justify the project — look for other drivers (reduced maintenance, process improvement, extended equipment life) that might change the case |
4. Common Mistakes
Mistake 1 — Comparing only purchase price, omitting installation and commissioning
Installation labor, panel modifications, cabling (Module 1), and commissioning time
(across every module in this book) are real costs that belong in the total, not just the equipment line item on
a quote.
Mistake 2 — Ignoring increased maintenance complexity in ongoing costs
A VFD or soft starter often needs different (not necessarily more, but different)
maintenance skills and spare parts than a simple contactor — factor this into the ongoing cost side, not just
the energy savings side.
Mistake 3 — Not accounting for equipment service life vs. payback period
A payback period close to or exceeding the equipment's realistic service life means the
project may never actually pay for itself in practice, even though the annual savings number looked attractive
on paper.
Knowledge Check
1. Why should installation and commissioning costs be included alongside equipment purchase price in a payback calculation?
They shouldn't — only equipment price matters for payback
They are real upfront costs of the project and omitting them understates the true payback period
Installation costs are always negligible compared to equipment cost
2. A project has a calculated payback period of 9 years, but the equipment's realistic service life is 7 years. What does this suggest?
The project is automatically a good investment regardless
The project may never fully pay for itself within the equipment's useful life on energy savings alone
Service life has no bearing on payback period calculations
3. Why should additional ongoing maintenance cost be factored into a TCO calculation, not just energy savings?
Maintenance costs are always zero for VFDs and soft starters
Different equipment may require different maintenance skills/parts, and this ongoing cost can offset some of the energy savings
Maintenance cost only matters for equipment under warranty
Module 6 Complete — Economics & Decision-Making
2 lessons: affinity-law energy savings calculations, and total cost of ownership with payback period analysis.
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