Introduction to

Construction Management
Presentation By: Aditi K. Shah
Content
▪ Importance of machineries in construction
▪ Classification of Construction Equipment
▪ Plants & Equipment used in construction
▪ Factors affecting selection of construction equipment
▪ Financial aspects related to construction equipments
▪ Discounted present worth analysis
▪ Depreciation
▪ Cost of owning and operating construction equipment
▪ Economic life of construction equipment
▪ Equipment replacement policy
The importance of machineries for
construction

▪ Work can be completed fast.

▪ Cost of project is reduced.
▪ Less number of laborers required.
▪ Excavation work can be carried out rapidly by using Power
shovel, Dragline etc.
▪ Output is higher
▪ Transportation of construction materials can be done easily by using
Trucks, Wagons, Dumpers etc.
▪ Heavy loads can be lifted with the help of Tower crane, Elevator etc.
The importance of machineries for
construction (contd.)

▪ Better quality in construction is obtained by using construction

equipments.
▪ E.g.: canal lining, concrete spreading, compaction & finishing are
carried out by lining machine.
▪ Finishing & rolling of bituminous roads is not possible without
Rollers.
Power Shovel
Dragline
Dumper
Tower
Crane
 Lining
Machine
Concrete
Mixer
Bulldozer
Scrapper
 Air
compressor
 Belt
Conveyor
Classification of Construction
Equipment(according to work cycle)

1. Intermittent Type: a. Bulldozers

b. Scrappers
c. Power Shovels
d. Concrete Mixers
e. Dragline

2. Continuous Flow Type: a. Air Compressors

b. Belt Conveyors

3. Mixed Type: a. Motor Graders

Classification of Construction
Equipment(according to nature of Automation)

1. Manually Operated Equipment

2. Semi-Automatic Equipment
3. Fully Automatic Equipment
Classification of Construction
Equipment(according to Standardization of machine)

1. Standard Equipment
2. Special Equipment
Difference B/w Standard and Special
Equipments

Standard Equipment Special Equipment

▪ Commonly used in all projects ▪ Used only in special cases

▪ Manufactured commonly & easily available from ▪ Manufactured as per requirements, special order
dealer has to be placed

▪ Initial investment is low ▪ Initial investment is high

▪ Resale price is high ▪ Resale price is low

▪ Delivery is easy & fast ▪ Delivery is difficult & delayed

▪ Repairs and spare parts are easily found ▪ Repairs and spare parts are difficult to find

▪ Disposal is easy ▪ Disposal is difficult

▪ Unit cost of production is less ▪ Unit cost of production is high

▪ Rent is low and reasonable ▪ Rent is high and unreasonable

▪ E.g. Canal Trimmer ▪ E.g. Belt Conveyor

Plants & Equipments used in Construction

▪ Equipment for Excavation ▪ Equipment for production of

aggregate
▪ Earthmoving equipment
▪ Plant for grouting and guniting
▪ Hauling equipment
▪ Machineries for bituminous road
▪ Hoisting equipment
▪ Machineries for concrete works
▪ Conveying equipment
▪ Dredging equipment
▪ Pile driving equipment
▪ Drilling equipment
Equipment
for
Excavation
Earthmoving
Equipment
 Hauling
Equipment
 Hoisting
Equipment
Conveying
Equipment
 Pumping
Equipment
Compacting
equipment
Pile Driving
Equipment
 Drilling
Equipment
Equipment for
production of
Aggregate
Grouting
Guniting
 Machinery for
Bituminous Road
Dredging
Equipment
Factors affecting the selection of
Construction Equipment

1. Use of standard equipments

2. Size of equipment
3. Uniformity of type
4. Country of origin
5. Initial cost of equipment
6. Availability of spare parts
7. Unit cost of production
8. Operating facility
9. Suitability for future
Financial aspects related to
construction equipments

▪ How to arrange finance Sources of

equipment
▪ Whether to buy or hire
Long term Short term

Buy Lease

Leasing with
Down On loans Payment in
Time lease option to buy
payment mobilized installments
later
Direct purchase

Advantages Disadvantages
▪ Equipment is always ▪ If equipment becomes obsolete, it is
economically operated useless

▪ It receives better care & ▪ Large sums involved remain blocked

maintenance ▪ Tendency to perform work as per
available equipment
▪ It can be available and used at
any time ▪ Disposal is difficult
▪ Equipment may be used beyond its
economic life
▪ Equipment may remain in idle
condition for some time
Hiring (advantages)

▪ Little care is required for maintenance and storage

▪ Desired equipment is available in working order at short
notice
▪ Investment costs can be diverted to other better purposes
▪ No fear of obsolescence of equipment, full advantage is
taken by contractor of the improved technical aspects of
equipment
▪ If found useful, equipment can be bought later
Examples- Purchase/ Hire

▪ The original cost of bulldozer power shovel is

Rs. 4 lacs & its salvage value is 8% of the
original cost. The bulldozer is use for 1200
hours/year and its life is 4 years. The hiring
charges for the bulldozer incl. maintenance &
repairs is Rs. 20000/month. Suggest whether
the bulldozer should be purchased or hired.
Solution: (on the board)
Discounted Present Worth Analysis

▪ It involves calculating the present value of all

amounts involved in all the alternatives to
determine the present worth of the proposed
alternatives.
▪ Decision problems may be of two types:
a. Revenue dominated cash flow diagram
b. Cost dominated cash flow diagram
What is Inflow and Outflow:
 (a) Revenue Profit dominated cash flow
diagram:
▪ In this type of cash flow diagram, the revenue, profit, salvage
value, etc. (inflows) will be assigned a (+ve) sign while costs
(outflows) will be assigned.
▪ Finally, the alternative having the maximum present worth amount
should be selected as the best alternative.
(b) Cost dominated cash flow diagram:
▪ In this type of diagram, the cost(outflows) will be assigned with (+ve)
sign and revenue, profit, salvage value(all inflows) etc. will be
assigned with (-ve) sign.
▪ Finally, the alternative having the minimum present worth amount
should be selected as the best alternative.
Depreciation
▪ It is the gradual loss in the value of the property due to its
use, life, wear, tear and decay.
▪ It is dependent on its original condition, quality of
maintenance & mode of use.
▪ Usually a % of depreciation per annum is allowed, which
gradually increases with time
▪ Present value of property
= Initial cost - Total amount of depreciation
Types of depreciation

a) Physical depreciation
1. wear and tear from operation
2. action of time and other elements
b) Functional depreciation
1. inadequacy or suppression
2. obsolescence
Methods of Calculating Depreciation:

1. Straight Line method

2. Constant Percentage method
3. Sinking Fund method
4. Sum of Digits method
5. Service Output method
 Straight Line method
Assumption: Property loses its value by the same amount every year.
Therefore, Annual Depreciation= Annual Decrease in property value
where, D= Annual Depreciation
C= Original Cost
Depreciation of property after m years: S= Scrap Value
n , m= life in years

Therefore, Book value after m years:

Constant Percentage method
▪ Assumption: Property will lose its value by a constant percentage of its
value at the beginning of every year.
Where, p= % rate of annual Depreciation
S= Scrap value
C= Original cost
n= life in years
▪ If any age of property is m years, the value of property after m years:
Sinking Fund method
▪ Assumption: depreciation of the property = the annual sinking fund
+ interest on the sinking fund for that year
▪ If I is the rate of interest, the annual sinking fund installment(p) to
accumulate 1 Rs in m years:

▪ If I is the rate of interest, and 1 Rs is deposited every year, total

sinking fund accumulated at the end of n years:

▪ Rate of depreciation in n years:

Factors affecting Cost of Owning &
operating Equipment:
▪ Cost of the equipment to the owner
▪ Demand of the equipment at the end of its useful life
▪ Number of hours it is used per year
▪ Number of years it is used
▪ Severity of conditions under which it is used
▪ State of maintenance and repairs
Costs to be considered for owning and
operating equipment:
▪ Depreciation Cost
▪ Investment Cost (Average investment= )
▪ Maintenance and repair Cost
▪ Operation Cost (Repair charges, Depreciation on tyres and
tubes, Labour Charges, Fuel Charges, Operators and
maintenance crew charges, Miscellaneous Supplies)
▪ Down time Cost
▪ Obsolescence Cost
▪ Replacement Costs
Numerical
For construction Equipment following information is available.
Initial cost of acquisition = Rs 6500000
Cost of tyre sets = Rs 350000, replaced after every 4500 hours
Cost of lubricants, minor
Repairs and maintenance = Rs 1100/hour
Estimated life = 13500 hours of operation
Estimated salvage value = 15% of initial cost
Estimated usage of equipment= 1500 hours/year
If MARR is 20% per year, Estimate minimum hourly rental charges for
equipment
Economic life of Construction
Equipments:

Equipment should be replaced under following circumstances:

1. Depreciation
2. Downtime
3. Inadequacy
4. Normal Deterioration
Equipment Replacement Policy:
A firm has to face three type of decisions:
1. The replacement of equipment as it wears out
2. The equipment required for expansion
3. The replacement of old technology by new
Equipment is replaced before its estimated life to:
▪ Reduce production cost
▪ Reduce fatigue
▪ Raise quality
▪ Increase output
▪ Secure greater convenience, safety and reliability
What not to consider while selecting an
equipment:

For Equipment in Use

▪ Original Cost
▪ Money already spent on repairs and maintenance
▪ Unrealistic book value
For New Equipment
▪ Any savings not clearly assessable
▪ Overhead charges
Thank you