The Economy of Construction Equipment

SI-4151 CONSTRUCTION EQUIPMENT & METHODS

ECONOMIC CONSIDERATION of HEAVY EQUIPMENT SELECTION

Objective: to find the lowest hourly charge

TOTAL COST = OWNERSHIP COST + OPERATION COST

BUY (for most of the time) LEASE (with option to buy) RENT
DEPRECIATION I.T.I.S

EQUIPMENT OPERATOR
FUEL LUBRICANT, FILTER TIRE REPAIR Operator's WAGES OTHER

POPULATION & UNIFORMITY OF EQUIPMENT

MOBILIZATION & DEMOBILIZATION

ECONOMIC OF CONSTRUCTION EQUIPMENT

SI-4151 Construction Equipment & Method

Equipment Cost Consideration

Life Time Type of Equipment
Standard Special purposed

Time Value of Money

Useful life Tax life Economic life

Cost ($ / hr)

total cost operating cost min tot. cost ownership cost

economic life

Time (years)

Effects of Equipment Variable Costs

ECONOMIC OF CONSTRUCTION EQUIPMENT

SI-4151 Construction Equipment & Method

Service Life of Equipment

Life Time:
Useful life of new equipment guaranteed to performed as specified Economic life that results economic outputs

Lowest Life Time Cost per Total Output (LLTCpTO):

Lowest average unit cost along economic life of equipment The lowest ratio of the overall cost to total output over the economic life of equipment
LLTCpTO = Life Time Cost Total Output VALUE = Total Output Life Time Cost

E2

10
OUTPUT

better

E1

0
ECONOMIC OF CONSTRUCTION EQUIPMENT

COST

10
SI-4151 Construction Equipment & Method

Estimating Equipment Cost

Fuel Consumption
Gasoline engines Diesel engines

Qg = Qd =

0.7 x hp x (load factor), (gph) 6.2 0.5 x hp x (load factor), (gph) 7.2

Lubricant Consumption
0.6 x hp x (0.007) / 7.4 + C , (gph) Ql = t
hp = horse power C = crankcase capacity, gal t = number of hours between changes

Ownership Cost Depreciation Cost

I.T.I.S. (%) of AAI

AAI or Average Annual Investment = (n+1)P + (n-1)S
2n
P= Initial Cost, S= Salvage Value, n = Life, Years 1 gal = 3.785 liter 1 mile = 1.61 Km
ECONOMIC OF CONSTRUCTION EQUIPMENT

SI-4151 Construction Equipment & Method

It is common that there are tables provided by the manufacturer

ECONOMIC OF CONSTRUCTION EQUIPMENT

SI-4151 Construction Equipment & Method

Exercise

DUMPTRUCK: Crankcase capacity 9 gal Power = 230 HP (diesel fuel engine) F.O.B price = Rp 415.000.000,Transport Cost = Rp 37.000.000,Wheel Cost (8 wheels) = Rp 3.350.000,-/wheel Useful life = 7 years Salvage Value = Rp 96.650.000,Operating hours = 1850 hours/year Interest, Tax, Insurance, Storage = 12% Fuel cost = Rp 2.100 / gal Lubricant cost = Rp 97.800 /gal Time for changing oil = 175 hours Filter cost = @ 30% lubricant cost Tire replacement cost = Rp 650.000/1675 operating-hour Operator cost = Rp 26.500,- /hour Method of Depreciation = Straight line
SI-4151 Construction Equipment & Method

ECONOMIC OF CONSTRUCTION EQUIPMENT

1. OWNING COST:
F.O.B. Less Tire (8 @ Rp 3.350K) Transport Cost Depreciable Cost Depreciation Cost = = = = Rp Rp Rp Rp 415.000.000 (26.800.000) 37.000.000 425.200.000

Answer (1)

= (Rp 425.2M Rp 96.65M) / 7 yrs = Rp 46.935.715 /year

AAV

= [(7 +1) * Rp 425.2M + (7-1) * Rp 96.65M] / (2 * 7) = Rp 284.392.857

= 12% * Rp 284.392.857 = Rp 34.127.140

ITIS cost

Annual Owning Cost Owning Cost

= Rp 46.935.715 + Rp 34.127.140 = Rp 81.062.855 = Rp 81.062.855 / 1.850 hr/yr = Rp 43.818,- / hr

Note: for track/crawler mounted equipment, wheel cost is included in equipment

ECONOMIC OF CONSTRUCTION EQUIPMENT

SI-4151 Construction Equipment & Method

 Track
Will be used (almost) the whole life of equipment

Tire Types

Rubber Tire

ECONOMIC OF CONSTRUCTION EQUIPMENT

9 SI-4151 Construction Equipment & Method

2. OPERATING COST:

Answer (2)

Fuel consumption = [ 0.5 * 230 * 0.90 ] / 7.2 = 14.375 gal/hr Lub. consumption = [ 0.6 * 230 * 0.007] / 7.4 + 9/175 = 0.18 gal/hr

Fuel cost = 14,375 gal/hr * Rp 2.100 / gal = Rp 30.188 /hr Lubricant cost = 0,18 gal/hr * Rp 97.800 / gal = Rp 17.797 /hr Filter Cost = 30% * Rp 17.797 /hr = Rp 5.399 /hr
Tire Cost = [8 *Rp 3.350.000 ]/1675 hr = Rp 16.000 /hr Tire Replacement = Rp 650.000 / 1675 hr = Rp 388 /hr Operator Cost Operating Cost = Rp 26.500 / hr (sometime it is excluded) = Rp 96.272 / hr

3. OWNING & OPERATING COST:

Total cost = Rp 43.818,- / hr + Rp 96.272 /hr = Rp 140.090 / hr

ECONOMIC OF CONSTRUCTION EQUIPMENT

SI-4151 Construction Equipment & Method

10

Homework #2a
Due in a week, before class
Crankcase capacity 7.5 gallons Power = 270 HP (diesel fuel engine) F.O.B price = Rp 1.145.000.000, Transport Cost = Rp 27.500.000, Work & operating conditions: Average Salvage Value = Rp 295.650.000, Operating hours = 1380 hours/year Interest, Tax, Insurance, Storage = 13,5% Fuel cost = Rp 22.200 / gal Lubricant cost = Rp 110.800 /gal Time for changing oil = 225 hours Filter cost = @ 35% lubricant cost Operator cost = Rp 45.500,- /hour Method of Depreciation = Straight line Useful life = 9 years

CAT D-11 Tractor:

If average productivity is 220 cy/hr; what is the production cost (Rp/cy)

ECONOMIC OF CONSTRUCTION EQUIPMENT

11 SI-4151 Construction Equipment & Method

Homework #2b
Due in a week, before class Crankcase capacity 8.5 gln Power = 245 HP (diesel fuel engine) F.O.B price = Rp 775.000.000,Transport Cost = Rp 28.500.000,Wheel Cost (8 wheels) = Rp 2.450.000,-/wheel Useful life = 10 years Salvage Value = Rp 160.750.000,Operating hours = X hours/year Interest, Tax, Insurance, Storage = 11% Fuel cost = Rp 18.900 / gal Lubricant cost = Rp 155.800 /gal Time for changing = 195 hours Filter cost = @ 25% lubricant cost Tire replacement cost = Rp 650.000/1600 operating-hour Operator cost = Rp 37.500,- /hour Method of Depreciation = Straight line

DUMPTRUCK:

If Rental Cost = Rp 221.500 /hour; find breakeven operating hours (X)

ECONOMIC OF CONSTRUCTION EQUIPMENT

SI-4151 Construction Equipment & Method

12