Cost of the Equipment

In this step the estimators must define what will be needed to complete the Project and what the Cost of the Equipment is:

Cost of the Equipment

To execute this Stage the group of estimators with the support of Specialists must define the type of Equipment required for the Project and then establish its Costs.

Equipment Type

Equipment currently refers to a set of tools, machinery or other objects that are used to achieve a particular objective.
Equipment includes machinery, furniture, and accessories, vehicles, computers, electronic devices, office machines, etc.
In this Blog, the term Equipment encompasses the set of machine, tools and vehicles used to execute a Construction Work.

To define the Type of Equipment needed to execute a Project, it is analyzed and examined, for example:
The documentation of the Folder.
The information in progress that was elaborated in the previous posts of “Identification and computation of Materials” and “Calculation of direct man-hours”.
The descriptions provided by the Specialists on how the Project being quoted is executed, step by step.
The preliminary Work Plan of the Project, which defines the time of use of the Machinery, Vehicles, etc.

The previous analysis defines:
The type and quantity of vehicles for transfer and internal movement of workers and hierarchical personnel (collectives, 4×4 or 4×2 vans, vehicles for Supervisors, etc.).
The number and type of trucks for General services, (for example, those required for the provision of drinking water, irrigation water, and industrial water, for internal transport of Materials and Machinery, etc.).
The type of Heavy and Light-duty Equipment, Mobile Cranes, Motor Welding Machines, Current Generator Groups, Welding Machines, etc., required to execute the Project.

Cost of the Equipment: Daily cost of vehicles and machinery

Definitions:

Useful Life of Vehicles and Machinery

The Useful Life is defined as the period during which the Equipment works with a reliable and economically justifiable performance.
The Useful Life of a Work Equipment is affected by the severity of the conditions under which it is used, the care with which it is maintained and repaired and by its technological obsolescence.
Generally, the Useful Life is estimated in total hours. To guide the reader, we present the following values:
Light-duty construction machinery: 6,000 hours of total work; 3 years of duration (for example drills, grinders, etc.).
Heavy-duty machinery: 10,000 hours of total work; 5 years of duration (for example a Front Loader).
Ultra-heavy duty machinery: 16,000 hours of total work; 8 years of life (e.g., Asphalt Plant).
In order to reach the values above, 2,000 hours of annual work have been assumed, which is quite close to reality.

Cost of the Equipment: Original Equipment Value

The Acquisition Value or Original Value is the market price of the Equipment. In order to do this, all the expenses demanded by the acquisition of the Equipment must be taken into account.
If the Equipment is of foreign manufacture, the quotation must include the price of the unit placed in the port of embarkation (FOB), the expenses of embarkation, freight and disembarkation in the Port of destination (CIF), port rights of storage, insurance for goods in transit, other related expenses (such as letters of credit, guarantees, etc.), transportation to the machinery park of the owner, etc.

Resale value of machinery and vehicles at the end of their useful life

The Rescue Value for heavy machinery (loaders, motor graders, tractors, etc.) generally fluctuates between 20 and 25% of the Acquisition Value.
The Rescue Value for machinery and light-duty equipment (compressors, mixers, motor pumps, motor welders, etc.) generally fluctuates between 10 and 20% of the Acquisition Value.

Cost of the Equipment: Value to Depreciate

Depreciation is the loss of value of equipment as a result of its use or age. It is assumed that the Equipment will decrease in value from its original total cost at a uniform rate. The Straight Line Depreciation Method is used here.

Average Equipment Value

Value to Depreciate divided in 2.

Cost of the Equipment: Cost for Maintenance and Repair

The Cost of Maintenance and Repair of machinery or vehicle results from the sum of the Cost of Labor and the Cost of Spare Parts and it’s a significant amount of the Cost of the Equipment.
In order to obtain the Cost of Labor and the Cost of Spare Parts, it is necessary to calculate previously the Cost of Maintenance of machinery or vehicle during its useful life.
This is preferentially considered as a percentage of the Depreciation Value:
Cost of Maintenance for Heavy Work: 80 to 100% of the Depreciation Value.
Maintenance Cost for Normal Work: 70 to 90% of the Depreciation Value.
Maintenance Cost for Light-duty Work: 50 to 80% of the Depreciation Value.
The Cost of Labor represents 25% of the Cost of Maintenance.
The Cost of Spare Parts represents 75% of the Cost of Maintenance.

Cost of the Equipment: Cost per liter of Fuel

Here the fuel consumption of the two types of engines used in construction equipment is analyzed:
Gasoline Engines: 0.23 liters / Hp hour
Diesel engine: 0.15 liters / Hp hour.

Cost for the consumption of the tires/track of the machine as a consequence of its use

Heavy machinery requires special tires for various construction applications. Depreciation is obtained by dividing the value of the tires/tracks considered as new in the life hours of the tires/track.
The life hours of the tires/track is generally data provided by the manufacturer and depends on the severity of use.
The repair of tires/tracks is taken as 15% of their depreciation.

The daily cost of affected personnel

In the case of a Vehicle, it will be its driver in the case of a Concrete Plant it will be that of its qualified operator and assistants.

The interest of the Invested Capital

Any company to buy machinery finances the necessary funds in the banks or capital markets, paying for it the corresponding interests. It may be the case that if the entrepreneur has sufficient funds of own capital, makes the investment directly waiting for the machine to pay back in proportion to the investment made.
An amount equivalent to the interest of the capital invested in the machinery is charged in this item.
It is calculated as the Average Value of the equipment (value to Depreciate divided in 2) by the Interest rate.

Cost for Insurance, Taxes, and Storage

Insurance premiums vary according to the type of machinery and the risks it must cover during its economic life. This charge exists both in the case that the machinery is insured with Insurance Company or that the Owner self-insures. The type of insurance to be considered is All Risks, which can be assumed at an average of 5.5%.

The taxes are applied to the acquired property. Its percentage must be calculated according to current legislation and may vary in the order of 1 to 2%.

With respect to storage, it refers to the cost caused by the permanence of the machinery in central workshops due to inactivity. This cost is estimated to be in the order of 1 to 1.5% of the Average Value of the equipment.

Cost of the Equipment: Cost per hour of Equipment

Summary of Vehicle and Machinery Costs per day.

1-Depreciation

Cost of the Equipment includes: Cost per day to Depreciate that is equals:
Value to Depreciate X 8 hours per day, divided by the Useful Life in hours.

2-Interests

In the Cost of the Equipment, Interest must be calculated. The daily cost for Interest is equal to:
Average value X annual interest X 8 hours a day, divided 2000 hours a year.

3-Machinery Maintenance and Repairs

In the Cost of the Equipment, the costs for Maintenance and Repairs are relevant. The daily cost for Maintenance and Repairs is equal to:
Cost of Maintenance and Repairs for Heavy Duty: 80 to 100% of the Daily Depreciation Value.
Cost of Maintenance and Repairs for Normal Work: 70 to 90% of the Daily Depreciation Value.
Cost of Maintenance and Repairs for Light-duty Work: 50 to 80% of the Daily Depreciation Value.

4-Fuels

The daily cost of Fuels is equal to (Diesel Engine)
0,15litres / Hp hour X HP X 8 hours daily X cost of the liter of fuel.

5-Lubricants

The daily cost of Lubricants is equal to:
40% of the daily cost per Fuel.

6-Consumption of tires/tracks of the machine or equipment as a result of their use

Value to guide the Reader 15% of the Depreciation of the tire/track.

7-Labour

The cost of the worker’s daily wage, plus social charges X the percentage of affectation is equal to the daily cost of Labor.

8-Vigilance

The daily cost per Vigilance is equal to:
10% of the cost of daily Labor.

9-Cost for Insurance, Taxes, and Storage

In cost of the Equipment, Insurance, Taxes and Storage costs are charged.:
For Insurance: 5.5% of the Average Depreciation Value.
For Taxes 1.5% of the updated value.
For Storage 1.5% to 2% of the value of the Average value of Depreciation.

Total daily cost

Adding the items 1 to 9 we arrive at the estimate of the Daily Cost of the Equipment necessary to execute the Project that we are quoting.

See in the previous Post “Man hours calculation”.

See Category:Engineering vehicles