Define the service and common study period
Include modules, pumps, pretreatment, installation and commissioning within the agreed scope. Add energy, chemicals, wash water, waste management, labour, maintenance and replacement during the study period. If one quotation excludes pipework or automation included by another, correct the comparison before applying financial calculations.
Annual useful production must reflect demand, operating hours and outages. Do not assign revenue to spare capacity that the factory will not use. An option that fails water-quality or continuity requirements is not technically equivalent merely because its discounted cost is lower; establish technical acceptability first.
Discount each cost at the appropriate time
A simple expression is present cost = initial investment + sum of Cₜ/(1+r)^t − residual value/(1+r)^n. Here r is the rate per period and t is the number of periods. Record payment timing; a simplified annual model can assume year-end payments when that convention is stated.
Use consistent constant-money costs and a real discount rate, or current-money costs and a nominal rate. Do not add general inflation and then discount at an unadjusted real rate. NIST explains this consistency; US federal programme rates do not automatically define the appropriate rate for a Spanish industrial business.
Example: a small difference can reverse
Assume five years, a hypothetical real rate of 5%, year-end operating payments, equal service and no residual value. Option A costs €100,000 initially and €20,000 annually; option B costs €120,000 and €15,000 annually. The present-value annuity factor is approximately 4.3295. These are illustrative assumptions, not equipment quotations.
A totals approximately €186,590 and B €184,942. B has a calculated advantage of about €1,648, rather than measured savings. If B also needs an omitted €10,000 replacement at the end of year three, its additional present cost is about €8,638 and the preference reverses.
Test the uncertainties that influence purchasing
Vary electricity price, operating hours, cleaning frequency, membrane life and concentrate management. Keep ranges technically defensible; do not assume identical element life under different operating conditions without evidence. Include interruption costs only where the owner has supplied an estimate, and avoid counting the same production loss twice.
Present scenarios with identified assumptions, excluded common costs and decision sensitivity. The result should reveal which variable needs pilot measurement or quotation confirmation. Extra decimal places do not compensate for an unknown replacement interval or an undefined supply boundary.
Common questions
Does simple payback replace life-cycle costing?
No. Simple payback does not describe every payment or its timing. It can provide an additional indicator, but does not replace a complete comparison over a common study period.
Which discount rate should be used?
The company should set it according to its economic criteria and the model basis. Show sensitivity rather than treating a rate published for another programme as mandatory.