OWNERSHIP COST
OF
CONSTRUCTION PLANT & EQUIPMENT
Kumar Gyanendra Mohan
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Introduction
Construction equipment is one of the
biggest investments carried by
construction industry.
Knowledge about owning cost and
operating cost is must before equipment
mobilization.
Also, monitoring of actual operating and
owning cost of equipment on regular
basis is necessary for optimum
profitability.
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Introduction
Owning cost and operating cost of
equipment has significant impact on
profitability of work executed.
Owning and operating cost, need to be
calculated based on the financial
investment terms and condition,
depreciation method and operating
condition of equipment.
OEM recommendation can be considered
for calculating owning and operating cost.
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Introduction
 Ownership and operating costs of
work need to be calculated based
on
1. units of work production per hour (ton/hr or
cum3/hr etc),
2. cost per hour (Rs./hr etc), or
3. unit cost (Rs./ton or Rs./cum)
 Establishing
the
unit
cost
is
especially useful as it can compare
dissimilar machines.
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Introduction
 The
ownership
costs
of
construction plant & equipment
can be categorized into
1.Fixed cost,
2.Variable cost, and
3.Employee cost
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Fixed Cost
Fixed costs are those which can be
predetermined as accumulating with
the passage of time, rather than with
the rate of work.
We need to pay these costs
regardless of weather the equipment
is used or not.
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Fixed Cost
 Commonly included in fixed costs
are
1.equipment depreciation,
2.interest on investment,
3.taxes,
4.storage and protection, and
5.insurance.
 Fixed costs of equipment are the
result of procurement and vanish
when it is sold.
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Variable Cost
 Variable costs incurred only when the machine
is put to work. These costs include the
1.costs of fuel,
2.lubricants,
3.wear parts,
4.equipment maintenance and repairs.
 Operating cost depends largely on the way
machine is operated (operator skill).
 Proper maintenance also play’s vital role in
operating cost.
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Employee Cost
 Employee
costs
are
those
costs
associated with employing people for
 operation,
 maintenance, and
 supervision.
 employee cost includes:
 direct wages,
 food contributions,
 transport,
 social costs,
 health and retirement, incentive.
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A to Z Element for
calculation of Ownership Cost
A. Purchase price (inc. options,
delivery & set up costs). Often these
are the cost known with certainty.
B. Wear parts cost: It cost of wear parts,
tires, tracks or ground engaging tool.
Wear parts, tires, tracks or ground
engaging tool are operating costs.
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A to Z Element for
calculation of Ownership Cost
C. Economic Life: This is the period over
which the equipment can be operated at an
acceptable operating cost and productivity.
The economic life is generally measured in
terms of years, hours, or kilometers.
D. Ownership period: The intended period
of the machine to be utilized by owner. This
can be based on economic life or physical
life, or a compromise of the two.
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A to Z Element for
calculation of Ownership Cost
E. Residual value: The future market
value of the machine - discounted back
to a present value. Estimate of realizable
value for disposal of equipment.
F. Depreciation Time: The intended
period of the machine over which
depreciation is divided. This can be
based on economic life or physical life,
or a compromise of the two.
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A to Z Element for
calculation of Ownership Cost
G. Annual depreciation cost: This is
calculated by deducting the residual value
from the purchase price and dividing the
remaining amount by the no. of years the
machine is to be kept or any other
depreciation method selected by owner.
H. Interest rate: Interest rate is used to
work out the cost of capital. (Can vary
depending on whether own funds are used
or borrowings).
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A to Z Element for
calculation of Ownership Cost
I. Interest Cost: Calculation of interest
cost based on average annual value.
J. Machine tax: Many equipment owners
must pay taxes or some type of usage
tax on equipment.
K. Machine tax cost: Taxes can be
calculated by either using the estimated
tax rate multiplied by the actual value of
the equipment or by multiplying the tax
rate by the average annual investment.
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A to Z Element for
calculation of Ownership Cost
L. Insurance costs (annual): Most private
equipment owners will have one or more
insurance policies against damage, fire,
and other destructive events.
M. Storage and Protection Cost: Costs for
equipment storage and off-duty protection
are fixed costs, largely independent of the
hours of use. Costs of storage and
protection must be spread over the total
hours of equipment use.
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A to Z Element for
calculation of Ownership Cost
N. Fuel cost (e.g. Rs. per liter): Assume the
present cost of fuel - as it can vary wildly over
the lifetime of a machine and is almost
impossible to predict accurately.
O. Fuel consumption per hour: Based on
engine power, application, environment,
operator skill/commitment, machine design,
load factor.
P. Cost of Major Overhaul: It is major overhaul
cost of equipment. It is depend on usages,
operator skill, working condition etc.
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A to Z Element for
calculation of Ownership Cost
Q. Life time of Major Overhaul: It is
lifetime of major overhaul, usually
expressed in year, hour, and kilometer. It is
depend on usages, operator skill, working
condition etc.
R. Planned maintenance cost: It is planned
regular maintenance to prevent failure,
preventive maintenance including material,
maintenance manpower, travel time and
mileage. It is depend on usages, operator
skill, working condition etc.
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A to Z Element for
calculation of Ownership Cost
S. Life time of planned maintenance: It
is lifetime of planned maintenance,
usually expressed in year, hour, and
kilometer. It is depend on usages,
operator skill, working condition etc.
T. Cost of Wear Parts: It is major wear
parts of equipment. It is depend on
usages, operator skill, working condition
etc.
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A to Z Element for
calculation of Ownership Cost
U. Life time of Wear Parts: It is lifetime of
wear parts, usually expressed in year, hour,
and kilometer. It is depend on usages,
operator skill, working condition etc.
V. Lubricants: These include engine oil,
transmission oil, final drive oil, grease and
filters. The replacement interval varies with
the type of equipment, environmental working
condition (temperature), the design of the
equipment and the level of maintenance. This
is based on OEM recommendation.
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A to Z Element for
calculation of Ownership Cost
W. Lubricant Interval: This is to be
calculated based on OEM recommendation.
X. Lubricant Cost: This is cost of lubricant
per litre.
Y. Operator Cost: It is operator salary
including facility as per method of
employment.
Z. Operating Hours: It is planned operating
hours of equipment on annual basis.
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Calculation of
Ownership Cost & Operating Cost
.
www.constructionmechanizer.com
Calculation of
Ownership Cost & Operating Cost
.
www.constructionmechanizer.com
Calculation of
Ownership Cost & Operating Cost
.
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Thought of
Construction Mechanizer
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Thought of
Construction Mechanizer
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THANK YOU
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info@constructionmechanizer.com
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