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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) EQUIPMENT


LEASE (with option to buy) OPERATOR
RENT
• FUEL
• DEPRECIATION
• LUBRICANT, FILTER
• I.T.I.S
• TIRE
• REPAIR
• Operator's WAGES
• OTHER

• POPULATION & UNIFORMITY OF EQUIPMENT

• MOBILIZATION & DEMOBILIZATION


ECONOMIC OF CONSTRUCTION EQUIPMENT SI-4151 Construction Equipment & Method 2
Equipment Cost Consideration
• Life Time • Type of Equipment • Time Value of Money
• Useful life • Standard
• Tax life • Special
• Economic life purposed

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 3


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 VALUE = Total Output
Total Output Life Time Cost
E2
10 better
OUTPUT

E1

0 COST 10
ECONOMIC OF CONSTRUCTION EQUIPMENT SI-4151 Construction Equipment & Method 4
Estimating Equipment Cost
• Fuel Consumption

0.7 x hp x (load factor), (gph)


Gasoline engines Qg = 6.2
Diesel engines Qd = 0.5 x hp x (load factor), (gph)
7.2
• Lubricant Consumption
Ql = 0.6 x hp x (0.007) + 7.4C
t
, (gph)

hp = horse power
C = crankcase capacity, gal
t = number of hours between changes
• Ownership Cost
Depreciation Cost
I.T.I.S. (%)
(n+1)P + (n-1)S
Average Annual Value = 2n
1 gal = 3.785 liter 1 mile = 1.61 Km

ECONOMIC OF CONSTRUCTION EQUIPMENT SI-4151 Construction Equipment & Method 5


Tables for
Fuel and Tire

ECONOMIC OF CONSTRUCTION EQUIPMENT SI-4151 Construction Equipment & Method 6


Exercise

• Crankcase capacity 9 gal DUMPTRUCK:


• 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 = 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
ECONOMIC OF CONSTRUCTION EQUIPMENT SI-4151 Construction Equipment & Method 7
Answer (1)
1. OWNING COST:

• F.O.B. = Rp 415.000.000
• Less Tire (8 @ Rp 3.350K) = Rp (26.800.000)
• Transport Cost = Rp 37.000.000
• Depreciable Cost = Rp 425.200.000

• Depreciation Cost = (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

• ITIS cost = 12% * Rp 284.392.857 = Rp 34.127.140

• Annual Owning Cost = Rp 46.935.715 + Rp 34.127.140 = Rp 81.062.855

• Owning Cost = 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 8


Tire Types
• Track
– Will be used
(almost) the
whole life of
equipment

• Rubber Tire

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ECONOMIC OF CONSTRUCTION EQUIPMENT SI-4151 Construction Equipment & Method 9
Answer (2)
2. OPERATING COST:

• 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 = 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 = Rp 26.500 / hr

• Operating Cost = 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
• Crankcase capacity 7.5 gallons CAT D-11 Tractor:
• 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
• If average productivity is 220 cy/hr; what is the production cost (Rp/cy)
SI-4151 Construction Equipment &11Method
ECONOMIC OF CONSTRUCTION EQUIPMENT
Homework #2b

• Crankcase capacity 8.5 gln DUMPTRUCK:


• 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

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

ECONOMIC OF CONSTRUCTION EQUIPMENT SI-4151 Construction Equipment & Method 12