OWNERSHIP COST OF CONSTRUCTION PLANT & EQUIPMENT

OWNERSHIP COST

OF

CONSTRUCTION PLANT & EQUIPMENT

Kumar Gyanendra Mohanwww.constructionmechanizer.com

www.constructionmechanizer.com

Introduction

Construction equipment is one of the biggest investments carried by construction industry.

Knowledge about owning cost and operating cost is must before equipment mobilization.

Also, monitoring of actual operating and owning cost of equipment on regular basis is necessary for optimum profitability.


Introduction

Owning cost and operating cost of equipment has significant impact on profitability of work executed.

Owning and operating cost, need to be calculated based on the financial investment terms and condition, depreciation method and operating condition of equipment.

OEM recommendation can be considered for calculating owning and operating cost.


Ownership and operating costs of work need to be calculated based on

1. units of work production per hour (ton/hr or cum3/hr etc),

2. cost per hour (Rs./hr etc), or 3. unit cost (Rs./ton or Rs./cum)

Establishing the unit cost is especially useful as it can compare dissimilar machines.

Introduction


The ownership costs of construction plant & equipment can be categorized into

1.Fixed cost,

2.Variable cost, and

3.Employee cost

Introduction


Fixed costs are those which can be predetermined as accumulating with the passage of time, rather than with the rate of work.

We need to pay these costs regardless of weather the equipment is used or not.

Fixed Cost


Commonly included in fixed costs are

1.equipment depreciation, 2. interest on investment, 3.taxes, 4.storage and protection, and5. insurance.

Fixed costs of equipment are the result of procurement and vanish when it is sold.

Fixed Cost


Variable costs incurred only when the machine is put to work. These costs include the

1.costs of fuel, 2. lubricants, 3.wear parts, 4.equipment maintenance and repairs.

Operating cost depends largely on the way machine is operated (operator skill).

Proper maintenance also play’s vital role in operating cost.

Variable Cost


Employee costs are those costs associated with employing people for

operation, maintenance, and supervision.

employee cost includes: direct wages, food contributions, transport, social costs, health and retirement, incentive.

Employee Cost


A. Purchase price (inc. options, delivery & set up costs). Often these are the cost known with certainty.

B. Wear parts cost: It cost of wear parts, tires, tracks or ground engaging tool. Wear parts, tires, tracks or ground engaging tool are operating costs.

A to Z Element for calculation of Ownership

Cost


C. Economic Life: This is the period over which the equipment can be operated at an acceptable operating cost and productivity. The economic life is generally measured in terms of years, hours, or kilometers.

D. Ownership period: The intended period of the machine to be utilized by owner. This can be based on economic life or physical life, or a compromise of the two.


Cost


E. Residual value: The future market value of the machine - discounted back to a present value. Estimate of realizable value for disposal of equipment.

F. Depreciation Time: The intended period of the machine over which depreciation is divided. This can be based on economic life or physical life, or a compromise of the two.


Cost


G. Annual depreciation cost: This is calculated by deducting the residual value from the purchase price and dividing the remaining amount by the no. of years the machine is to be kept or any other depreciation method selected by owner.

H. Interest rate: Interest rate is used to work out the cost of capital. (Can vary depending on whether own funds are used or borrowings).


Cost


I. Interest Cost: Calculation of interest cost based on average annual value.

J. Machine tax: Many equipment owners must pay taxes or some type of usage tax on equipment.

K. Machine tax cost: Taxes can be calculated by either using the estimated tax rate multiplied by the actual value of the equipment or by multiplying the tax rate by the average annual investment.


Cost


L. Insurance costs (annual): Most private equipment owners will have one or more insurance policies against damage, fire, and other destructive events.

M. Storage and Protection Cost: Costs for equipment storage and off-duty protection are fixed costs, largely independent of the hours of use. Costs of storage and protection must be spread over the total hours of equipment use.


Cost


N. Fuel cost (e.g. Rs. per liter): Assume the present cost of fuel - as it can vary wildly over the lifetime of a machine and is almost impossible to predict accurately.

O. Fuel consumption per hour: Based on engine power, application, environment, operator skill/commitment, machine design, load factor.

P. Cost of Major Overhaul: It is major overhaul cost of equipment. It is depend on usages, operator skill, working condition etc.


Cost


Q. Life time of Major Overhaul: It is lifetime of major overhaul, usually expressed in year, hour, and kilometer. It is depend on usages, operator skill, working condition etc.

R. Planned maintenance cost: It is planned regular maintenance to prevent failure, preventive maintenance including material, maintenance manpower, travel time and mileage. It is depend on usages, operator skill, working condition etc.


Cost


S. Life time of planned maintenance: It is lifetime of planned maintenance, usually expressed in year, hour, and kilometer. It is depend on usages, operator skill, working condition etc.

T. Cost of Wear Parts: It is major wear parts of equipment. It is depend on usages, operator skill, working condition etc.


Cost


U. Life time of Wear Parts: It is lifetime of wear parts, usually expressed in year, hour, and kilometer. It is depend on usages, operator skill, working condition etc.

V. Lubricants: These include engine oil, transmission oil, final drive oil, grease and filters. The replacement interval varies with the type of equipment, environmental working condition (temperature), the design of the equipment and the level of maintenance. This is based on OEM recommendation.


Cost


W. Lubricant Interval: This is to be calculated based on OEM recommendation.

X. Lubricant Cost: This is cost of lubricant per litre.

Y. Operator Cost: It is operator salary including facility as per method of employment.

Z. Operating Hours: It is planned operating hours of equipment on annual basis.


Cost


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Calculation of Ownership Cost & Operating Cost


Thought of

Construction Mechanizer


THANK YOU

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OWNERSHIP COST OF CONSTRUCTION PLANT & EQUIPMENT

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