Energy Costs and a Failing Chiller
You are the director of property operations for a 300-room hotel. The central chiller plant is 19 years old and has had three compressor failures in 14 months, each causing a partial loss of cooling to 40–60 guest rooms for 6–10 hours. Guest complaints about room temperature have tripled, and two corporate accounts have raised service-level concerns. Utility spend is running 9% over budget year-to-date, driven by the chiller running at reduced efficiency. A replacement chiller is quoted at $680,000 installed with a 12-week lead time. A rebuild of the existing unit is $190,000 with a 4-week lead time and an expected 4–6 additional years of life at lower efficiency. The GM wants a recommendation before the next ownership meeting.
1. Compare replacement versus rebuild on cost, risk, and guest impact, and make a recommendation.
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Rebuild is cheaper upfront ($190,000 vs. $680,000) and faster, but it preserves an inefficient plant and does not eliminate the underlying reliability pattern - three failures in 14 months on a 19-year-old unit is a warning sign, and a rebuild buys time rather than solving the problem. Replacement costs $490,000 more but delivers efficiency gains that reduce the 9% utility overrun, removes the failure risk during peak season, and protects the corporate accounts whose concerns are already on record. Recommend replacement, but sequence it around the season: order now given the 12-week lead time, and consider a short-term rebuild or rental chiller only if the unit fails before the new one arrives. If capital is constrained, a rebuild is defensible only with a written plan and funding commitment for replacement within 3 years - otherwise you are deferring an inevitable cost while absorbing recurring guest-impact risk.
2. How would you quantify the cost of inaction for the ownership presentation?
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Build the case from four streams: (1) energy penalty - the 9% overrun on the utility budget, annualized, is the recurring cost of inefficiency; (2) emergency repair spend - three compressor failures in 14 months, annualized at the actual invoice amounts; (3) revenue at risk - the two corporate accounts, valued at their annual room-night contribution, discounted by the probability of losing them; (4) guest-impact cost - complaint handling, compensation, and review damage. Present these as an annual cost of inaction against the $490,000 incremental capital for replacement, and show simple payback. The point is not a precise number but a defensible order of magnitude that reframes the decision from 'save $490,000' to 'what does waiting cost per year.' Flag any assumption you cannot source.