Final Dispose

Heavy Machinery Management

Contents
• Introduction
• Terminal competences
• Competences
• Machinery valorization
• Machinery replacement
• Investment analysis
• Bibliography
Introduction
• This unit presents investment analysis
models in heavy equipment as well as
renovation models for the definition of the
optimal life of the equipment. Likewise, it
develops processes for the valorization of
heavy machinery.
Terminal Competences

• Justify final disposal actions to be carried

out once the optimum life of the heavy
equipment has been reached.
Competences
• Develop valuation models of heavy equipment to
determine its commercial value.

• Determine the optimal life of a heavy equipment.

• Evaluate final disposal investments of heavy

equipment to determine its viability and
convenience.
 Appraisal Process

Qualities

Inspection Study Analysis

Reasonable
Characteristics
value
Appraisal Report

Manufacturing,
Description acquisition and Present status
installation

Value of new Depreciation

Life
similar and
expectancy
equipment improvements

Commercial
value
Equipment Description

Brand

Characteristics

Serial
Model
numbers
Present Status

STATUS CHARACTERISTICS
New Not been used
Good Operates in perfect technical and physical conditions, has
not undergone any repair and receives permanent
maintenance
Regular It operates normally and receives permanent maintenance,
with only slight external deterioration due to normal use,
which does not influence the development of its work or
function
Bad Does not receive periodic maintenance, whose external part
has visible physical deterioration and its operational use has
flaws or failures to develop its normal work
Very bad Inoperative status
Util Life

MAXIMUM ANNUAL
USEFUL
ASSET DEPRECIATION
LIFE
PERCENTAGE
Ground transportation vehicles
20% 5 years
(except railways)
Machinery and equipment used for
mining, oil and construction 20% 5 years
activities
Depreciation
E
D  VSN  R x
T

If:
• VSN: New similar equipment value
• R: Residual value
• E: Equipment age to the appraisal date
• T: Total useful life
Replacement Value

VR  VSNxOT  D xGo

If:
• VR: Replacement value
• OT: Technical obsolescence coefficient
• Go: Operability degree
Technical Obsolescence

USED LIFE OT
Same technology 100%
Some sensible changes 95%
Important changes in force 90%
Current technology change 85%
Not current changes technology 65%
Operativity Degree

FACTOR GOOD REGULAR DEFICIENT

Parts 0 a 0.05 0.06 a 0.11 0.12 a 0.18
Accessories 0 a 0.05 0.06 a 0.11 0.12 a 0.18
Extension capacity 0 a 0.05 0.06 a 0.11 0.12 a 0.18
Reliability 0 a 0.05 0.06 a 0.11 0.12 a 0.18
Commercial Value

VC  VRxFm

If:
• VC: Commercial value
• Fm: Market factor
Market factor

Conservation Level and Market Status Fm

Excellent 100%
Good 95%
More than regular 90%
Regular 85%
Less than regular 80%
Bad 75%
Very bad 70%
Appalling 65%
Equipment Disposal

Technical Economical
reasons reasons
• Physical • Low
destruction productivity
• Production • Costs
speed increase
reduction • Low profit
• Quality and
safety
Optimal Life

Minimize
costs

Maximize
productivity

Maximize
profitability
Global Cost

n
A  i 1 C i  R (t )
c g
(t ) 
t

If:
A: Equipment price
Ci: Period Accumulated expenses
Ri: Period commercial value
Cg: Global cost
Net Present Value
Method
n
VAN ( j )  V 0  
B  V
j j
j j
j 1 (1 r ) (1 r )

If:
VAN(j): Total net present value
Vo: Investment payment
Bj: Period flow
r: Discount rate
Vj: Period commercial value
Zero Profit

Equipment will be renewed when the difference between

gross profit and depreciation, that is, net profit,
decreases until it equals the opportunity cost.
Investments Types

Renewal

Repair Expansion

Upgrade and
modernization
Investment Parameters

Period

Discount Investment
rate Payment

Flows Revenue

Expenses
Evaluation Criteria
Net present
value

Internal Investment
return ratio benefit ratio

Recovery
period
Bibliography

• Casanovas, M. (2003). Opciones Financieras.

Barcelona: Pirámide.
• International Organization Standarditation
(2014). Asset management — Overview,
principles and terminology. Geneva: ISO.
• Reliabilityweb.com (2017). Asset Management.
Florida: Reliabilityweb.com.
• Society for Maintenance and Reliability
Professionals (2013). SMRP Best Practices.
USA: SMRP.