MANAGING RESOURCES

- CONSTRUCTION MACHINERIES/EQUIPMENTS -

By

Prof. Muhd. Zaimi Abd. Majid, PhD.

Executive Director, Innovative Construction
Research Alliance
UTM Skudai, Malaysia
 Contents

 Introduction
 Planning of Machineries / Equipments
 Problems Related to Machineries / Equipments
 Acquisition of Machineries / Equipments
 Maintenance of Machineries / Equipments
 Economic Evaluation
 Summary
 Introduction

One of the most important resources to be managed

is machineries and equipments.
The cost of using machineries / equipments may
varies from the range of 20% - 40% of total
construction cost.
Some types of projects are labour intensive while
majority of infra-structure works are extensively using
machineries / equipments.
 Introduction

Based on substantial cost involved, thus construction

machineries / equipments must be properly
managed.
Appropriate planning and acquiring of machineries
can help to reduce or avoid the problems face during
construction stage.
 Planning of
Machineries / Equipments

Planning and scheduling of machineries / equipments

must be indicated on the work programme.
Requisition on acquiring must be made once the
decision has been made to use a particular
machinery.
Analysis of levelling on the usage of machineries /
equipments can guide the managers to make critical
decision.
 Planning of
Machineries / Equipments

Undoubtedly, critical activities will be given the most

priority.
If during a particular day, 2 or more activities require
the use of same equipment, hence priority must be
given to the critical activity.
Despite careful planning and acquisition, problems
may still occur during construction stage.
 Problems Related to
Machineries / Equipments
Several problems faced by the contractors during the
constructions progress. Among these problems are
highlighted in Figure 1. However, the important
things to do is to acquire the machineries /
equipments needed.
 BREAKDOWN
UNAVAILABILITY

No Maintenance

Unaware No Requisition
of Market
Availability
Over Usage

PROBLEM
RELATED TO
MACHINERIES &
EQUIPMENTS
Several
Uneconomic Activities
age

No
Security No
Hoarding

Unplanned
Unskilled
Operations Under Capacity

STOLEN

SHORTAGES
INEFFICIENT

Figure 1 : Problems Related to Machineries and Equipments

 Acquisition of
Machineries / Equipments

The decision to acquire construction machineries /

equipments has to be considered seriously cause the
capital required is very high. The cost of some
machineries can be in the range of several hundred
thousand to Million Ringgit.
If decided to purchase and own a particular machine,
one has to take into account services such as
maintenance, rental, cost account, etc.
 Acquisition of
Machineries / Equipments
Acquiring construction machineries can be
considered through several option as shown in
Figure 2.
Machineries / Equipments Acquisition

Rental Lease Own (Purchase)

Own Not to Own

Figure 2 – Machineries / Equipments Acquisition

 Acquisition of
Machineries / Equipments

There are several factors to be considered if one

decided to purchase and own a particular machine.
(i) Output Capacity – beside capacity of the
machine, availability of skill operator has to be
taken into account.
(ii) Market Demand – before purchasing it is good to
consider market demand so that the
purchasing is not only for a project but can also be
rented out.
 Acquisition of
Machineries / Equipments

(iii)Economic Life
– An optimum age that a machine should be replaced
or sold. To maintain beyond economic life (optimum
age) may be very expensive and uneconomical.
– Question 1 is an example on problem of replacement
age of machinery.
 Acquisition of
Machineries / Equipments
Question 1:-
Optimum Replacement Age
The purchase price of a combined Heat and Power generating
plant is RM500,000. The annual operating costs are
estimated to be RM5,000 in the first year, these double in each
of the following 5 years and remain at RM160,000 for
subsequent years. The resale value is reduced by RM100,000
in each of the first 4 years and by RM10,000 per annum
thereafter. Calculate the optimum replacement age of the
generating plant if the cost of capital is 10%.
Table 1
YEAR A B C D E F G
PURCHASE CAPITAL EQUIVALENT RUNNING COST PRESENT PRESENT Σ PRESENT
PRICE RECOVERY ANNUAL COST (R.C) (RM) WORTH FACTOR WORTH WORTH
(RM) FACTOR (A X B) @ 10% -RUNNING COST -RUNNING
@ 10% (RM) COST

0 500,000 - - - 1.0 - -

1   1.10 550,000 5,000 0.909 4545 4545

2   0.576 288,000 10,000 0.826 8260 12,605

3   0.402 201,000 20,000 0.757 15,020 27,825

4   0.315 157,500 40,000 0.683 27,320 55,145

5   0.264 132,000 80,000 0.621 49,680 104,825

6   0.230 115,000 160,000 0.564 90,240 195,065

7   0.205 102,500 160,000 0.513 82,080 277,145

8   0.187 93,500 160,000 0.467 74,720 351,865

9   0.174 87,000 160,000 0.424 67,840 419,705

10   0.163 81,500 160,000 0.386 61,760 481,465

11   0.154 77,000 160,000 0.350 56,000 537,465

Table 1
YEAR H I J K L M
EQUIVALENT [H + C] RESALE VALUE PRESENT EQUIVALENT Σ EQUIVALENT
ANNUAL COST (RM) WORTH ANNUAL ANNUAL COST
(RC) -RESALE- COST [I – L]
(B X G) (J X E) [K X B] (RM)

0 - - - - - -

1 5,000 555,000 400,000 363,600 399,960 155,040

2 7,184 295,184 300,000 247,800 142,733 152,451

3 11,186 212,186 200,000 150,200 60,380 157,806

4 17,371 174,871 100,000 68,300 21,515 153,356

5 27,674 159,674 90,000 55,890 14,755 144,919

6 44,865 159,865 80,000 45,120 10,378 149,487

7 56,815 159,315 70,000 35,910 7,362 151,953

8 65799 159,299 60,000 28,020 5,240 154,059

9 73,029 160,029 50,000 21,200 3,689 156,340

10 78,479 159,979 40,000 15,440 2,517 157,462

11 82,770 159,770 30,000 10,500 1,617 158,153

Solution : The Optimum Replacement Age for Generating Plant in Year 5

Table 1 is the analysis and solution of the replacement age
 Economic Evaluation

Decision to purchase a machinery is critical, hence

the selection of choices must be carefully evaluated.
An Example of a simple problem on economic
analysis is given below :
Machine 1 Machine 2
Capital Cost RM35,000 RM39,000
Running Cost (annually) RM7,000 RM5,500
Economic Life 5 years 5 years
 Economic Evaluation

If the interest rate is 15%, calculate the economic

value at year 0.
Value of Machine 1 (year 0) :
= RM35,000 + (RM7,000 x Present Worth Factor)
= RM35,000 + (RM7,000 x 3.352)
= RM58,464
 Economic Evaluation

Where present worth factor for uniform series

(1+ i)n – 1 i = interest rate
i (1+ i)n n = year

Value of Machine 2 (year 2) :

= RM39,000 + (RM5,500 x 3.352)
= RM57,436
Hence, Machine 2 is more economic.
 Economic Evaluation

Problem :
Determine which is the most economical proposal
if we take inflation into consideration in selecting
plants in the following table.
 Economic Evaluation

The cash flows as follows :

Year Plant 1 Plant 2
0 8500 9500
1 1750 1500
2 1750 1500
3 1750 1500
4 1750 1500
5 1750 1500
 Economic Evaluation

These cash flows were all estimated at year zero

prices. Any cash flow not occurring in year zero
would be subjected to inflation. Select the best
option if the inflation rate is 10% per annum and the
interest rate is 15%.
 Economic Evaluation

Note :
(1+ i ) = (1+ d ) (1+ e)
where e = effective rate
i = interest rate
d = inflation rate
Present value if uniform series = (1+ i)n – 1
i (1+ i)n

While value of single sum = 1

(1+ i)n
 Summary

The cost of machineries and equipments usage of a

project is significant.
Planning of machineries and equipments usage is
essential which can help in the smooth running of a
project especially during peak demand.
Various problems related to machineries /
equipments can hinder the progress of work.
 Summary

Three distinct methods of acquiring machineries /

equipments for executing the planned works.
Several factors such as output capacity, market
demand and economic life need to be considered
when purchasing a machinery or equipment.