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Dynamic Life Cycle Machine Costing

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Dynamic Life Cycle Machine Owning and Operating Cost is a method of determining the cost per hour of off-road machines. The calculation of machine cost is broken into two categories: Ownership Cost and Operating Costs. Usually the following costs are included:

Ownership Cost

  1. Purchase Price (including all taxes and shipping)
  2. Make ready costs or accessories added
  3. Interest cost from loan or financing
  4. Cost of money or capital
  5. Insurance
  6. Hours of intended use
  7. Years of expected ownership
  8. Purchased Extended Warranty May be included in Operating cost)
  9. Other annual costs (for example storage costs)
  10. Subtract the Residual Value at time of sale

Operating Cost

  1. Fuel cost
  2. Filters
  3. Oils
  4. Grease
  5. Planned interval services cost
  6. Tire or Track costs
  7. Budgeted Component Repairs or Replacement costs
  8. Allowance for unscheduled repairs
  9. Ground Engaging Tools or high wear parts

All of the above costs are highly dynamic (or frequently changing) in their nature. They change for many reasons. Among the reasons for these changes in cost are: type or severity of work application, geological conditions, operator skill, operator temperament or practices, company maintenance practices, machine type, machine manufacturer, machine hours and machine age. One machine used on two different projects or work package may have a substantially different costs. This variation is why we use the word DYNAMIC (or Changing) in the title. Studies have shown that work application and geological conditions alone can create a cost variance by up to or more than 200 percent. A machine that costs $75.00 an hour to operate may cost as much as $150.00 per hour on a different project.

It is recommended that these calculations be made using a database with a graphical user interface which is programed to handle many variables as opposed to a spreadsheet.

[edit] History of Machine Owning and Operating Cost

In the early 1970's Caterpillar published its first Caterpillar Performance Handbook. Early editions contained a section called Owning and Operating Cost. Their engineers were first to quantify and widely distribute what has become known as the CAT Method of costing. They were early pioneers in explaining how cost is variable and should be reapplied to every project. The concepts they presented have been copied by almost every manufacturer of heavy equipment. It has been used in agriculture and automotive cost calculations.

Their original system was designed to be used as a manual calculation using paper, pencil and calculator, as spreadsheets had not been invented and few had access to computers. The CAT method, while substantially correct, did not permit the many variables that desktop computers of today can calculate with ease. Some costing calculations like the projected Life Time Annual Cost Projection may require over 2,500,000 calculations, which are far too many for a person with a calculator to make.

[edit] Related Costing Methods and Topics

  • Machine Life Cycle Costing
  • Machine Owning and Operating Cost
  • Machine Historic Costing
  • Management Accounting

[edit] External Links

  • Examples of graphical user interfaces used for machine costing are available at DecisiveCost.