COST OF

CONSTRUCTION EQUIPMENTS
 INTRODUCTION
2 MIA SOEJOSO 2013

WHY WE NEED TO WHAT IS

UNDERSTAND THE COST EQUIPMENT
OF CONSTRUCTION COST?
EQUIPMENT ?

WHAT ARE THE

COMPONENTS?
 OWNERSHIP COST
3 MIA SOEJOSO 2013

EQUIPMENT COST = OWNERSHIP COST + OPERATING COST

 EXCEPT FOR THE ONE-TIME INITIAL

1. INITIAL CAPITAL COST
CAPITAL COST OF PURCHASING
THE MACHINE, OWNERSHIP 2. DEPRECIATION
COSTS ARE FIXED COSTS THAT
ARE INCURRED EACH YEAR, 3. INVESTMENT/INTEREST COST
REGARDLESS OF WHETHER THE
EQUIPMENT IS OPERATED OR 4. INSURANCE COST
IDLE
5. TAXES
 WHILE OPERATING COSTS ARE
THE COSTS INCURRED ONLY 6. STORAGE COST
WHEN THE EQUIPMENT IS USED
 INTIAL COST
4 MIA SOEJOSO 2013

 ON AVERAGE, INTIAL COST MAKES UP ABOUT 25% OF THE TOTAL COST

INVESTED DURING THE EQUIPMENT’S USEFUL LIFE
 THIS COST IS INCURRED FOR GETTING EQUIPMENT INTO THE CONTRACTOR’S
YARD, OR CONSTRUCTION SITE, AND HAVING THE EQUIPMENT READY FOR
OPERATION

INITIAL CAPITAL COST

1. PRICE AT FACTORY + EXTRA EQUIPMENT + SALES TAX

2. SHIPPING COST

3. ASSEMBLY AND ERECTION COST

 DEPRECIATION
5 MIA SOEJOSO 2013

 DEPRECIATION REPRESENTS THE DECLINE IN MARKET VALUE OF A PIECE OF

EQUIPMENT DUE TO AGE, WEAR, DETERIORATION AND OBSOLESCENCE
 SOME VALUES THAT SHOULD BE ESTIMATED WHEN MAKING ASSESSMENT OF
DEPRECIATION :
• INITIAL COST, THE AMOUNT NEEDED TO ACQUIRE THE EQUIPMENT
• USEFUL LIFE, THE NUMBER OF YEARS IT IS EXPECTED TO BE OF UTILITY VALUE
• SALVAGE VALUE, THE EXPECTED AMOUNT OF ASSET WILL BE SOLD AT THE
END OF ITS USEFUL LIFE
 MOST COMMONLY METHOD OF DEPRECIATION USED IN CONSTRUCTION
EQUIPMENT INDUSTRY:
• STRAIGHT-LINE METHOD
• DOUBLE-DECLINING BALANCE METHOD
• SUM-OF-YEARS’ DIGIT METHOD
 STRAIGHT LINE METHOD
6 MIA SOEJOSO 2013

 STRAIGHT LINE DEPRECIATION IS THE SIMPLEST TO UNDERSTAND AS IT MAKES

THE BASIC ASSUMPTION THAT THE EQUIPMENT WILL LOSE THE SAME AMOUNT
OF VALUE IN EVERY YEAR OF ITS USEFUL LIFE UNTIL IT REACHES ITS SALVAGE
VALUE (D1 = D2 = … = Dn)
 THE DEPRECIATION IN A GIVEN YEAR CAN BE EXPRESSED BY THE FOLLOWING
EQUATION :

Dn : DEPRECIATION IN YEAR n ($)

Dn = IC – S – TC IC : INITIAL COST ($)
N S : SALVAGE VALUE ($)
TC : THE TIRE AND TRACK COSTS ($)
N : THE USEFUL LIFE (YEARS)
 SUM OF YEARS’ DIGITS DEPRECIATION
7 MIA SOEJOSO 2013

 THE ACTUAL MARKET VALUE OF A PIECE OF EQUIPMENT AFTER 1 YEAR LESS THAN
THE AMOUNT PREDICTED BY STRAIGHT LINE METHOD. THIS IS AN ACCELERATED
DEPRECIATION METHOD AND IT MODELS MORE ANNUAL DEPRECIATION IN THE
EARLY YEARS OF A MACHINE’S LIFE AND LESS IN ITS LATER YEARS.

 THE CALCULATION CAN BE DONE USING THE FOLLOWING EQUATION:

Dn = (YEAR “n” DIGIT) (IC – S – TC)

1+2+…+N

Dn : DEPRECIATION IN YEAR n ($) TC : THE TIRE AND TRACK COSTS ($)

IC : INITIAL COST ($) N : THE USEFUL LIFE (YEARS)
S : SALVAGE VALUE ($) YEAR “n” DIGIT IS THE REVERSE ORDER
 DOUBLE DECLINING BALANCE METHOD
8 MIA SOEJOSO 2013

 IT IS ANOTHER METHOD FOR CALCULATING AN ACCELERATED DEPRECIATION

RATE. IT PRODUCES MORE DEPRECIATION IN THE EARLY YEARS OF A MACHINE’S
USEFUL LIFE THAN THE SUM OF YEARS’ DIGIT DEPRECIATION METHOD
 THIS IS DONE BY DEPRECIATING THE “BOOK VALUE” OF THE EQUIPMENT RATHER
THAN JUST ITS INITIAL COST. THE ESTIMATOR HAS TO BE CAREFUL WHEN USING
THIS METHOD AND

Dn : DEPRECIATION IN YEAR n ($)

Dn = 2 (BVn-1 – TC) S : SALVAGE VALUE ($)
N TC : THE TIRE AND TRACK COSTS ($)
N : THE USEFUL LIFE (YEARS)
BVn-1 : BOOK VALUE AT THE END OF THE
PREVIOUS YEARS ($)
BVn-1 ≥S
 Q : EXAMPLE ONE (GRANSBERG ET. AL, 2006)
9 MIA SOEJOSO 2013

 COMPARE THE DEPRECIATION IN EACH YEAR OF THE EQUIPMENT’S USEFUL LIFE

FOR EACH OF THE ABOVE DEPRECIATION METHODS FOR THE FOLLOWING
WHEELED FRONT-END BUCKET LOADER
• INITIAL COST : $148,000 INCLUDES DELIVERY AND OTHER COSTS
• TIRE COST : $ 16,000
• USEFUL LIFE : 7 YEARS
• SALVAGE VALUE : $18,000
 A : EXAMPLE ONE
10 MIA SOEJOSO 2013

 STRAIGHT LINE METHOD

THE DEPRECIATION IN THE FIRST YEAR D1 IS EQUAL TO THE DEPRECIATION IN ALL
THE YEARS OF THE LOADER’S USEFUL LIFE

D = $148,000 - $18,000 - $16,000

7 YEARS
= $16,286/YEAR
 A : EXAMPLE ONE
11 MIA SOEJOSO 2013

 SUM OF YEARS’ DIGIT DEPRECIATION METHOD

THE DEPRECIATION IN THE FIRST YEAR D1, AND THE SECOND YEAR D2

D1 = 7 ($148,000 - $18,000 - $16,000 )

1+2+3+4+5+6+7
= $ 28,500

D2 = 6 ($148,000 - $18,000 - $16,000 )

1+2+3+4+5+6+7
= $ 24,429
ETC.
 A : EXAMPLE ONE
12 MIA SOEJOSO 2013

 DOUBLE DECLINING BALANCE METHOD

THE DEPRECIATION IN THE FIRST YEAR D1 IS
* THE BOOK VALUE AT THE
D1 = 2 ($148,000 - $16,000 )
END OF YEAR 1
7
= $148,000 - $37,714
= $37,714
= $110,286

* DEPRECIATION METHOD COMPARISON FOR WHEELED FRONT END LOADER IN $

METHOD YEAR
1 2 3 4 5 6 7
SL (Dn) 16,286 16,286 16,286 16,286 16,286 16,286 16,286
SOYD (Dn) 28,500 24,429 20,357 16,286 12,214 8,143 4,071
DDB(Dn) 37,714 26,939 19,242 13,744 9,817 6,543 0
 INVESTMENT/INTEREST COST
13 MIA SOEJOSO 2013

 INVESTMENT/INTEREST COST REPRESENTS THE ANNUAL COST (CONVERTED INTO

AN HOURLY COST) OF CAPITAL INVESTED IN A MACHINE. IF BORROWED FUNDS
ARE UTILIZED FOR PURCHASING A PIECE OF EQUIPMENT, THE EQUIPMENT COST
IS SIMPLY THE INTEREST CHARGED ON THESE FUNDS.
 HOWEVER, IF THE EQUIPMENT IS PURCHASED WITH COMPANY ASSETS, AN
INTEREST RATE THAT IS EQUAL TO THE RATE OF RETURN ON COMPANY
INVESTMENT SHOULD BE CHARGED.
 THEREFORE, INVESTMENT COST IS COMPUTED AS THE PRODUCT OF INTEREST
RATE MULTIPLIED BY THE VALUE OF THE EQUIPMENT, WHICH IS THEN CONVERTED
INTO COST PER HOUR OF OPERATION
 INVESTMENT/INTEREST COST
14 MIA SOEJOSO 2013

 THE AVERAGE ANNUAL COST OF INTEREST SHOULD BE BASED ON THE AVERAGE

VALUE OF THE EQUIPMENT DURING ITS USEFUL LIFE. THE AVERAGE VALUE OF
EQUIPMENT MAY BE DETERMINED FROM THE FOLLOWING EQUATION:

P = IC (n + 1) P = IC (n + 1) + S(n-1)
2 2n
* ASSUMPTION: A UNIT OF EQUIPMENT WILL * ASSUMPTION: A UNIT OF EQUIPMENT HAS
HAVE NO SALVAGE VALUE AT THE END OF ITS SALVAGE VALUE AT THE END OF ITS USEFUL LIFE
USEFUL LIFE

IC : TOTAL INITIAL COST (Rp.)

P : AVERAGE VALUE (Rp.)
N : USEFUL LIFE (YEARS)
 Q : EXAMPLE 2
15 MIA SOEJOSO 2013

 CONSIDER A UNIT OF EQUIPMENT COSTING $50,000 WITH AN ESTIMATED

SALVAGE VALUE OF $15,000 AFTER 5 YEARS. HOW MUCH THE AVERAGE VALUE?
 A : EXAMPLE 2
16 MIA SOEJOSO 2013

 USING TH EQUATION, THE AVERAGE VALUE (P) IS :

P = 50,000(5+1) + 15,000(5-1)
2(5)
= 300,000 + 60,000
10
= $36,000
 INSURANCE, TAX AND STORAGE COSTS
17 MIA SOEJOSO 2013

 INSURANCE COST REPRESENTS :

• THE COST INCURRED DUE TO FIRE, THEFT, ACCIDENT AND LIABILITY INSURANCE
FOR THE EQUIPMENT
 TAX COST REPRESENTS :
• THE COST OF PROPERTY TAX AND LICENSES FOR THE EQUIPMENT
 STORAGE COST INCLUDES :
• THE COST OF RENT AND MAINTENANCE FOR EQUIPMENT STORAGE YARDS
• THE WAGES OF GUARDS AND EMPLOYEES INVOLVED IN MOVING EQUIPMENT
IN AND OUT OF STORAGE AND ASSOCIATED DIRECT OVERHEAD
 THE RATE FOR INSURANCE, TAX AND STORAGE MAY SIMPLY BE ADDED TO THE
INVESTMENT COST RATE FOR CALCULATING THE TOTAL ANNUAL COST OF
INVESTMENT, INSURANCE, TAX AND STORAGE
 INSURANCE, TAX AND STORAGE COSTS
18 MIA SOEJOSO 2013

 THE AVERAGE RATES FOR INTEREST, INSURANCE, TAX AND STORAGE FOUND IN
THE LITERATURE ARE LISTED BELOW:

ITEM AVERAGE VALUE (%)

INTEREST 3–9
TAX 2–5
INSURANCE 1–3
STORAGE 0.5 – 1.5
 INSURANCE, TAX AND STORAGE COSTS
19 MIA SOEJOSO 2013

 TOTAL EQUIPMENT OWNERSHIP COST IS CALCULATE AS THE SUM OF

DEPRECIATION, INVESTMENT COST, INSURANCE COST, TAX AND STORAGE COST
 AFTER ALL ELEMENT OF OWNERSHIP COSTS HAVE BEEN CALCULATED, THEY CAN
BE SUMMED UP TO YIELD TOTAL OWNERSHIP COST PER HOUR OF OPERATION
 ALTHOUGH THIS COST MAY BE USED FOR ESTIMATING AND FOR CHARGING
EQUIPMENT COST TO PROJECTS, IT DOES NOT INCLUDE JOB OVERHEAD OR
PROFIT
 Q : EXAMPLE 3
20 MIA SOEJOSO 2013

 CALCULATE THE HOURLY OWNERSHIP COST FOR THE SECOND YEAR OF

OPERATION OF A 465 HP-TWIN-ENGINE SCRAPER. THIS EQUIPMENT WILL BE
OPERATED 8H/DAY AND 250 DAYS/YEAR IN AVERAGE CONDITIONS. USE THE
SUM OF YEARS’ DIGITS METHOD OF DEPRECIATION AS THE FOLLOWING
INFORMATION :

• INITIAL COST : $ 186,000 • INSURANCE : 1.5%

• TIRE COST : $ 14,000 • TAXES : 3%
• ESTIMATED LIFE : 5 YEARS • STORAGE : 0.5%
• SALVAGE VALUE : $ 22,000 • FUEL PRICE : $2.00/GAL
• INTEREST : 8% • OPERATOR’S WAGES : $24.60/HOUR
 A : EXAMPLE 3
21 MIA SOEJOSO 2013

 THE HOURLY OWNERSHIP COST FOR THE SECOND YEAR OF OPERATION OF A

465 HP-TWIN-ENGINE SCRAPER

DEPRECIATION IN THE 2ND YEAR

D2 = 4 (186,000-22,000-14,000)
15
= $ 40,000

* DEPRECIATION IN THE 2ND YEAR/HOUR

D2 = 40,000
8(250)
= $20/HOUR
 A : EXAMPLE 3
22 MIA SOEJOSO 2013

 INVESMENT COST, TAX, INSURANCE AND STORAGE COST :

COST RATE = INVESTMENT + TAX + INSURANCE + STORAGE

= 8+3 + 1.5 + 0.5 = 13%

AVERAGE ANNUAL COST = 186,000 (6) + 22,000(4) = $120,400

2(5)

INVESTMENT, TAX, INSURANCE AND STORAGE = 120,400 (0.13)

2000
= $ 7.83/HOUR

* TOTAL OWNERSHIP COST = 20 + 7.83 = $27.83/HOUR

 OPERATING COST
23 MIA SOEJOSO 2013

 OPERATING COST IS THE COST ASSOCIATED WITH THE OPERATION OF A PIECE

OF EQUIPMENT. THEY ARE INCURRED ONLY WHEN THE EQUIPMENT IS ACTUALLY
USED.
 OPERATING COST IS ALSO CALLED AS “VARIABLE” COST BECAUSE IT DEPENDS
ON SEVERAL FACTORS, SUCH AS :
• THE NUMBER OF OPERATING HOURS
• THE TYPES OF EQUIPMENT USED
• THE LOCATION AND WORKING CONDITION OF THE OPERATION
 MAINTENANCE AND REPAIR COST
24 MIA SOEJOSO 2013

 THE MAINTENANCE AND REPAIR COST USUALLY CONSTITUTES THE LARGEST

AMOUNT OF OPERATING EXPENSE FOR THE CONSTRUCTION EQUIPMENT
 GENERALLY, IT GETS HIGHER AS THE EQUIPMENT GETS OLDER
 THE ANNUAL COST OF MAINTENANCE AND REPAIR MAY BE EXPRESSED AS A
PERCENTAGE OF THE ANNUAL COST OF DEPRECIATION OR IT MAY BE EXPRESSED
INDEPENDENTLY OF DEPRECIATION
 THE HOURLY MAINTENANCE AND REPAIR COST CAN BE OBTAINED BY DIVIDING
THE ANNUAL MAINTENANCE AND REPAIR COST BY ITS OPERATING HOURS PER
YEAR

HOURLY M&R COST = ANNUAL M&R COST

HOURS OPERATED PER YEAR
 MAINTENANCE AND REPAIR COST
25 MIA SOEJOSO 2013

 THE HOURLY MAINTENANCE AND REPAIR COST DURING A PARTICULAR YEAR CAN
BE ESTIMATED BY USING THE FOLLOWING FORMULA :

HOURLY REPAIR COST DURING A PARTICULAR YEAR

= YEAR DIGIT x LIFETIME REPAIR COST
SUM OF YEARS’ DIGITS HOURS OPERATED

 THE LIFETIME REPAIR COST IS USUALLY ESTIMATED AS THE A PERCENTAGE OF THE

EQUIPMENT’S INITIAL COST DEDUCTING THE COST OF TIRES
 LIFETIME REPAIR COSTS
26 MIA SOEJOSO 2013

 RANGE OF TYPICAL LIFETIME REPAIR COSTS (GRANSBERG, ET. AL, 2006)

 Q : EXAMPLE 4
27 MIA SOEJOSO 2013

 ESTIMATE THE HOURLY MAINTENANCE AND REPAIR COST OF THE SCRAPER (SEE
ALSO : EXAMPLE 2) FOR THE SECOND YEAR OF OPERATION. THE INITIAL COST OF
THE SCRAPER IS $186,000, TIRE COST $14,000 AND ITS USEFUL LIFE IS 5 YEARS.
ASSUME AVERAGE OPERATING CONDITION AND 2000 HOURS OF OPERATION
PER YEAR.
 A : EXAMPLE 4
28 MIA SOEJOSO 2013

ASSUMPTION : LIFETIME REPAIR COST FACTOR = 0.90

LIFETIME REPAIR COST = 0.90 (186,000 - 14,000) = $ 154,800

* HOURLY REPAIR COST = 2 x 154,800 = $10.32/HOUR

15 2000
 TIRE COST
29 MIA SOEJOSO 2013

 THE TIRE COST REPRESENTS THE COST OF TIRE REPAIR AND REPLACEMENT
 BECAUSE THE LIFE EXPECTANCY OF RUBBER TIRES IS GENERALLY FAR LESS THAN
THE LIFE OF THE EQUIPMENT ON WHICH THEY ARE USED ON, THE DEPRECIATION
RATE OF TIRES WILL BE QUITE DIFFERENT FROM THE DEPRECIATION RATE OF THE
REST OF THE VEHICLE
 TIRE REPAIR COST CAN ADD ABOUT 15% TO TIRE REPLACEMENT COST

TIRE REPAIR AND REPLACEMENT COSTS

= 1.15 x COST OF A SET OF TIRES ($)
EXPECTED TIRE LIFE (HOURS)
 TIRE LIFE
30 MIA SOEJOSO 2013

 RANGE OF TYPICAL TIRE LIFE (GRANSBERG, ET. AL, 2006)

 CONSUMABLE COSTS
31 MIA SOEJOSO 2013

 CONSUMABLES ARE THE ITEMS REQUIRED FOR THE OPERATION OF A PIECE OF

EQUIPMENT THAT LITERALLY GETS CONSUMED IN THE COURSE OF ITS
OPERATION. THESE INCLUDE, BUT ARE NOT LIMITED TO :
• FUEL
• LUBRICANTS, AND
• OTHER PETROLEUM PRODUCTS
• FILTER, HOSES, STRAINERS AND OTHER SMALL PARTS AND ITEMS THAT ARE
USED DURING THE OPERATION OF THE EQUIPMENT
 FUEL COST
32 MIA SOEJOSO 2013

 FUEL CONSUMPTION IS INCURRED WHEN THE EQUIPMENT IS OPERATED

HOURLY FUEL CONSUMPTION

= FUEL CONSUMPTION FACTOR x RATED POWER x OPERATING HOUR

 WHEN OPERATING UNDER STANDARD CONDITIONS, A GASOLINE ENGINE WILL

CONSUME APPROXIMATELY 0.06 GAL OF FUEL PER FLYWHEEL HORSEPOWER
HOUR (FWHP-H), WHILE A DIESEL ENGINE WILL CONSUME APPROXIMATELY 0.04
GAL/FWHP-H
 THE HOURLY COST OF FUEL IS ESTIMATED BY MULTIPLYING THE HOURLY FUEL
CONSUMPTION BY THE UNIT COST OF FUEL

HOURLY FUEL COST = HOURLY FUEL CONSUMPTION x UNIT COST OF FUEL

 FUEL CONSUMPTION FACTOR
33 MIA SOEJOSO 2013

 AVERAGE FUEL CONSUMPTION FACTOR (GRANSBERG, ET. AL, 2006)

 Q : EXAMPLE 5
34 MIA SOEJOSO 2013

 CALCULATE THE AVERAGE HOURLY FUEL CONSUMPTION AND HOURLY FUEL

COST FOR A TWIN ENGINE SCRAPER (SEE ALSO: EXAMPLE 3). IT HAS A DIESEL
ENGINE RATED AT 465HP AND FUEL COST $2/GAL. DURING A CYCLE OF 20SEC,
THE ENGINE MAY BE OPERATED AT FULL POWER, WHILE FILLING THE BOWL IN
TOUGH GROUND REQUIRED 5 SEC.
DURING THE BALANCE OF THE CYCLE, THE ENGINE WILL USE NO MORE THAN
50% OF ITS RATED POWER. ALSO, THE SCRAPER WILL OPERATE ABOUT 45
MIN/HOUR ON AVERAGE.
 A : EXAMPLE 5
35 MIA SOEJOSO 2013

 FOR THIS CONDITION, THE APPROXIMATE AMOUNT OF FUEL CONSUMED

DURING 1 HOUR IS DETERMINED AS FOLLOWS:
• RATED POWER : 465 HP
• FUEL COST : $2/GAL
• FILLING THE BOWL CYCLE : 5 SEC/20 SEC : 0.250
• ENGINE FACTOR : 0.5
• REST OF CYCLE : 15/20 X 0.5 : 0.375
• TOTAL CYCLE : 0.250 + 0.375 : 0.625
• TIME FACTOR : 45 MIN/HOUR  MEANS 45/60 = 0.75
• OPERATING FACTOR : 0.625 x 0.75 : 0.47
 A : EXAMPLE 5
36 MIA SOEJOSO 2013

• ASSUMPTION :
FUEL CONSUMPTION FACTOR FOR UNFAVORABLE WORKING CONDITION :
0.040

* FUEL CONSUMED PER HOUR

= 0.47 x 465 x 0.040 = 8.74 GAL
* HOURLY FUEL COST = 8.74 GAL/HOUR x $2/GAL = $17.48/HOUR
 LUBRICATING OIL COST
37 MIA SOEJOSO 2013

 THE QUANTITY OF OIL REQUIRED BY AN ENGINE PER CHANGE WILL INCLUDE THE
AMOUNT ADDED DURING THE CHANGE PLUS THE MAKE-UP OIL BETWEEN
CHANGES
 IT WILL VARY WITH :
• THE ENGINE SIZE
• THE CAPACITY OF CRANKCASE
• THE CONDITION OF THE PISTON RINGS
• THE NUMBER OF HOURS BETWEEN OIL CHANGES
 IT IS A COMMON PRACTICE TO CHANGE OIL EVERY 100 TO 200 HOUR
 LUBRICATING OIL COST
38 MIA SOEJOSO 2013

 THE QUANTITY OF OIL REQUIRED CAN BE ESTIMATED BY USING THE FOLLOWING

FORMULA :

q = 0.006 x HP x f + c
7.4 t

q : QUANTITY CONSUMED (GAL/HR)

HP : RATED HORSEPOWER OF ENGINE
c : CAPACITY OF CRANKCASE (GAL)
f : OPERATING FACTOR
t : NUMBER OF HOURS BETWEEN CHANGES
CONSUMPTION RATE : 0.006 LBS/HP-HR
CONVERSION FACTOR : 0.74 LBS/GAL
 MOBILIZATION AND DEMOBILIZATION COST
39 MIA SOEJOSO 2013

 : IT IS THE COST OF MOVING THE EQUIPMENT FROM ONE JOB SITE TO ANOTHER
 IT IS OVERLOOKED BECAUSE OF THE ASSUMPTION THAT THE PREVIOUS JOB
WOULD HAVE ALREADY PAID FOR IT
 THE COSTS OF EQUIPMENT MOBILIZATION AND DEMOBILIZATION CAN BE LARGE
AND ARE ALWAYS IMPORTANT ITEMS IN ANY JOB WHERE SUBSTANTIAL
AMOUNTS OF EQUIPMENT ARE USED. THESE COSTS INCLUDE :
• FREIGHT CHARGES (OTHER THAN THE INITIAL PURCHASE)
• UNLOADING COST
• ASSEMBLY OR ERECTION COST (IF REQUIRED)
• HIGHWAY PERMITS
• DUTIES
• SPECIAL FREIGHT COSTS (REMOTE OR EMERGENCY)
 EQUIPMENT OPERATOR COST
40 MIA SOEJOSO 2013

 OPERATOR’S WAGES ARE USUALLY ADDED AS A SEPARATE ITEM AND ADDED TO

OTHER CALCULATED OPERATING COSTS.
 THEY SHOULD INCLUDE :
• OVERTIME OR PREMIUM CHARGES
• WORKMEN’S COMPENSANTION INSURANCE
• SOCIAL SECURITY TAXES
• BONUS
• FRINGE BENEFITS IN THE HOURLY WAGE FIGURE
 SPECIAL ITEMS COST
41 MIA SOEJOSO 2013

 THE COST OF REPLACING HIGH-WEAR ITEMS, SUCH AS DOZER, GRADER,

SCRAPER BLADE CUTTING AND END BITS, RIPPER TIPS, SHANKS, AND SHANK
PROTECTORS
 IT SHOULD BE CALCULATED AS SEPARATE ITEM OF THE OPERATING COST
 AS USUAL, UNIT COST IS DIVIDED BY THE EXPECTED LIFE TO YIELD COST PER
HOUR
 CALCULATING METHOD
42 MIA SOEJOSO 2013

 THE MOST COMMON METHODS FOR CALCULATING OWNERSHIP AND

OPERATING COSTS ARE :
• CATERPILLAR METHOD
• ASSOCIATION OF GENERAL CONTRACTORS OF AMERICA (AGC) METHOD
• THE EQUIPMENT GUIDE BOOK (EGB) METHOD
• THE DATA QUEST METHOD
• THE CORPS OF ENGINEERS METHOD
• THE PEURIFOY METHOD
 CATERPILLAR METHOD
43 MIA SOEJOSO 2013

 THE CATERPILLAR METHOD IS BASED ON THESE FOLLOWING PRINCIPLES :

• NO PRICES FOR ANY ITEMS ARE PROVIDED. FOR RELIABLE ESTIMATES, THESE
MUST ALWAYS BE OBTAINED LOCALLY
• CALCULATIONS ARE BASED ON THE COMPLETE MACHINE. SEPARATE ESTIMATES
ARE NOT NECESSARY FOR BASIC MACHINE, DOZER, CONTROL, ETC.
• THE MULTIPLIER FACTORS PROVIDED WILL WORK EQUALLY WELL IN ANY
CURRENCY EXPRESSED IN DECIMALS
• BECAUSE OF DIFFERENT STANDARDS OF COMPARISON, WHAT MAY SEEM A
SEVERE APPLICATION TO ONE MACHINE OWNER MAY APPEAR ONLY AVERAGE
TO ANOTHER. THEREFORE, IN ORDER TO BETTER DESCRIBE MACHINE USE, THE
OPERATING CONDITIONS AND APPLICATIONS ARE DEFINED IN ZONES
 CATERPILLAR METHOD
44 MIA SOEJOSO 2013

 OWNERSHIP COSTS
• OWNERSHIP COSTS ARE CALCULATED AS A CUM OF COSTS INCURRED DUE TO
DEPRECIATION, INTEREST, INSURANCE AND TAXES
• USUALLY DEPRECIATION IS DONE TO ZERO VALUE WITH THE STRAIGHT-LINE
METHOD
• ACQUISITION OR DELIVERED COSTS SHOULD INCLUDE COSTS DUE TO FREIGHT,
SALES TAX, DELIVER AND INSTALLATION
• TIRE COST IS SUBTRACTED FROM THE DELIVERED PRICE.
 CATERPILLAR METHOD
45 MIA SOEJOSO 2013

 OPERATING COSTS ARE BASED ON CHARTS AND TABLES IN THE HANDBOOK.

THEY ARE BROKEN DOWN AS FOLLOWS:
• FUEL
• FILTER, OIL AND GREASE (FOG) COSTS
• TIRES
• REPAIRS
• SPECIAL ITEMS
• OPERATOR’S WAGES
 Q : EXAMPLE 6
46 MIA SOEJOSO 2013

 TRUCK-MOUNTED CRANE : 150 TON W/260’

 LATTICE BOOM
 EQUIPMENT HORSEPOWER : 207
 CARRIER HORSEPOWER : 430
 AVERAGE CONDITIONS OF USE
 ESTIMATED ANNUAL USE IN HOURS : 1590 HOURS
 TOTAL EXPECTED USE IN HOURS : 20,000 HOURS
 USEFUL LIFE : 20,000/1590 : 12.58 YEARS
 TIRES FRONT : $3520
 TIRES DRIVE : $7040
 FUEL COST : $2/GAL
 SALES TAX : 8.7%
 FACTOR : SEE TABLE …
 A : EXAMPLE 6 (DEPRECIATION VALUE)
47 MIA SOEJOSO 2013

 DELIVERED PRICE (INCLUDING TAXES, FREIGHT AND INSTALLATION)

• LIST PRICE = $,197,389
• DISCOUNT AT 7.5% LESS = $80,804
SUBTOTAL = $1,107,585
• SALES TAX AT 8.7% = $96,360
SUBTOTAL = $1,203,945
• FREIGHT 1913 CWT ($3.08/CWT) = $5892
 LESS TIRE REPLACEMENT COSTS = $1,203,837
• FRONT : $3520
• DRIVE : $7040 = $10,560
 DELIVERED PRICE LESS TIRES = $1,193,277
 NET VALUE FOR DEPRECIATION = $1,193,277
 A : EXAMPLE 6 (OWNERSHIP COST)
48 MIA SOEJOSO 2013

 DEPRECIATION
= NET VALUE = $1,193,277 = $59.66
DEPRECIATION PERIOD IN HOURS 20,000

 INTEREST (=6.75%), INSURANCES (=3%), TAXES (=2%)

• INTEREST

• INSURANCE $47.77

• TAXES

 TOTAL HOURLY OWNERSHIP COST = $107.43

 A : EXAMPLE 6 (OPERATION COST)
49 MIA SOEJOSO 2013

 EQUIPMENT = FACTOR (HP)(FUEL COST PER GALLON)

• EQUIPMENT = (0.038)(207)(2) = $15.73
• CARRIER = (0.006)(430)(2) = $5.16
 FOG COST = 20.89
 TIRES = REPLACEMENT COST = 10,560 = $4.22
ESTIMATED LIFE IN HOURS 2500

 REPAIRS = FACTOR(DELIVERED PRICE LESS TIRES) = 0.07 (1,193,277)

1590 1590
= $52.53
 A : EXAMPLE 6 (OPERATION COST)
50 MIA SOEJOSO 2013

 TOTAL HOURLY OPERATING COST = $77.64

 OPERATORS HOURLY WAGE = $25.90
 TOTAL OWNERSHIP AND OPERATING COST = $210.97

 OWNERSHIP COST PER HOUR = $107.43

 OPERATING COST PER HOUR = $77.64
 OPERATOR WAGE PER HOUR = $25.90
 TOTAL COST PER HOUR = $210.97
 EQUIPMENT LIFE
51 MIA SOEJOSO 2013

 CONSTRUCTION EQUIPMENT LIFE CAN BE DEFINED IN 3 WAYS:

• PHYSICAL LIFE
• PROFIT LIFE
• ECONOMIC LIFE
 ONE CAN SEE IN THE GRAPH THAT OVER THE PHYSICAL LIFE OF THE MACHINE, IT
TAKES SOMETIME FOR THE NEW MACHINE TO EARN ENOUGH TO COVER THE
CAPITAL COST OF ITS PROCUREMENT. IT THEN MOVES INTO A PHASE WHERE THE
EQUIPMENT EARNS MORE THAN IT COSTS TO OWN, OPERATE AND MAINTAIN,
AND FINISHES ITS LIFE AT A SATAGE WHEN THE COSTS OF ITS MAINTENANCE
ARE GREATER THAN WHAT IT EARNS DURING THE PERIODS WHEN IT IS IN
OPERATION
 EQUIPMENT LIFE
52 MIA SOEJOSO 2013
 PHYSICAL LIFE
53 MIA SOEJOSO 2013

 PHYSICAL LIFE IS THE AGE AT WHICH THE MACHINE IS WORN OUT AND CAN NO
LONGER RELIABLY PRODUCE. AT THIS POINT, IT WILL USUALLY BE ABANDONED
OR SCRAPPED
 AS CONSTRUCTION EQUIPMENT AGES, MAINTENANCE AND OPERATING COSTS
INCREASE
 THE LENGTH OF A PIECE OF EQUIPMENT’S PHYSICAL LIFE AND THE RATE AT
WHICH ITS OPERATING COSTS RISE ARE AFFECTED BY THE CARE IT RECEIVES
WHILE IN USE, THE NATURE OF THE JOB IT IS DOING, AND THE QUALITY OF THE
MAINTENANCE IT RECEIVES
 PROFIT LIFE
54 MIA SOEJOSO 2013

 PROFIT LIFE IS THE LIFE OVER WHICH THE EQUIPMENT CAN EARN A PROFIT. THE
RETENTION BEYOND THAT POINT WILL CREATE AN OPERATING LOSS. THIS
ESSENTIALLY IS THE POINT WHERE THE MACHINE SEEMINGLY SPENDS MORE TIME
IN THE REPAIR SHOP THAN IT DOES ON THE PROJECT SITE.
 INCREASINGLY COSTLY REPAIRS EXACERBATE PROFIT LIFE AS MAJOR
COMPONENTS WEAR OUT AND NEED TO BE REPLACED
 THE EQUIPMENT MANAGER MUST BE ABLE TO IDENTIFY WHEN A PARTICULAR
MACHINE IS NEARING OR HAS REACHED THIS POINT AND PLAN TO REPLACE IT
WITH A NEW MACHINE WHILE THE MAJOR COMPONENTS ARE STILL
FUNCTIONAL
 ECONOMIC LIFE
55 MIA SOEJOSO 2013

 : TIME PERIOD THAT MAXIMIZES PROFITS OVER THE EQUIPMENT’S LIFE

 EQUIPMENTS’ OWNERS CONSTANTLY STRIVE TO MAXIMIZE PRODUCTION WHILE
MINIMIZING PRODUCTION COST. THUS, SELECTING ECONOMIC LIFE SPAN AS THE
METRIC TO MAKE THE EQUIPMENT REPLACEMENT DECISION IS IN FACT
OPTIMIZING PRODUCTION WITH RESPECT TO PROFIT.
 THE PROPER TIMING OF EQUIPMENT REPLACEMENT PREVENTS AN EROSION OF
PROFITABILITY BY THE INCREASED O& M COSTS AS THE EQUIPMENT AGES
BEYOND ITS ECONOMI LIFE
 ECONOMIC LIFE
56 MIA SOEJOSO 2013

 : TIME PERIOD THAT MAXIMIZES PROFITS OVER THE EQUIPMENT’S LIFE

 EQUIPMENTS’ OWNERS CONSTANTLY STRIVE TO MAXIMIZE PRODUCTION WHILE
MINIMIZING PRODUCTION COST. THUS, SELECTING ECONOMIC LIFE SPAN AS THE
METRIC TO MAKE THE EQUIPMENT REPLACEMENT DECISION IS IN FACT
OPTIMIZING PRODUCTION WITH RESPECT TO PROFIT.
 THE PROPER TIMING OF EQUIPMENT REPLACEMENT PREVENTS AN EROSION OF
PROFITABILITY BY THE INCREASED O&M COSTS AS THE EQUIPMENT AGES
BEYOND ITS ECONOMI LIFE
 OWNERS CAN DETERMINE THE MOST ECONOMICAL TIME TO REPLACE THE
EQUIPMENT BY KEEPING PRECISE RECORDS OF O& M COSTS
 DETERMINATION OF THE APPROPRIATE TIMING TO REPLACE A PIECE OF
EQUIPMENT REQUIRES THAT ITS OWNER INCLUDE NOT ONLY OWNERSHIP COSTS
& OPERATING COSTS, BUT ALSO OTHER COSTS THAT ARE ASSOCIATED WITH
OWNING & OPERATING THE GIVEN PIECE OF EQUIPMENT. THESE INCLUDE
DEPRECIATING, INFLATION, INVESTMENT, MAINTENANCE, REPAIR, DOWNTIME &
OBSOLESCENCE COSTS
 REFERENCES
57 MIA SOEJOSO 2013

 GRANSBERG, D. D. ET. AL (2006), CONSTRUCTION EQUIPMENT MANAGEMENT

FOR ENGINEERS, ESTIMATORS AND OWNERS, TAYLOR & FRANCIS GROUP
 PEURIFOY, R. L. ET. AL (2009), CONSTRUCTION PLANNING, EQUIPMENT AND
METHODS, MCGRAW-HILL
 NUNNALLY, S. W. (2007), CONSTRUCTION METHODS AND MANAGEMENT,
PRENTICE –HALL, INC.
 WOOD, S. (1996), HEAVY CONSTRUCTION: EQUIPMENT AND METHODS,
PRENTICE-HALL, INC.