Equipment Cost - Operating Cost
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Understanding Operating Costs
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Today, let's define operating costs. Can anyone tell me how operating costs differ from ownership costs?
I think operating costs are only incurred when the equipment is in use.
Exactly! Ownership costs are fixed, incurred regardless of use. They remain constant annually. Operating costs are variable and depend on usage. Think of it as your phone bill versus the cost of your phone itself.
So, if a machine stays idle, we still pay for ownership but not for operating?
Right! Remember: Operating Costs = Variable costs depending on usage. Ownership Costs = Fixed costs irrespective of use. A simple memory aid could be 'O for Operating is for On duty'.
That's helpful!
Components of Operating Costs
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Let's dive into the components of operating costs. Who can name one?
Consumables like fuel and oil?
Correct! Consumables are a significant part. They include fuel, lubricants, filters, and anything that gets used while running the equipment. Can someone list another component?
Wages paid to operators?
Exactly! Operating costs include operator wages and maintenance costs. Maintenance includes minor repairs as well. Why do low-cost repairs make it to operating costs instead of ownership?
Because ownership covers major repairs?
Spot on! Keep this in mind: ROM - 'Repairs Only Minor' belong in operational.
Estimating Operating Costs
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Now, how do we estimate these operating costs? We can gather information from past usage records or equipment manufacturers. What do you think is important in this process?
Understanding past usage helps in predicting future costs, right?
Absolutely! And manufacturers provide guidelines for specific equipment types. Remember the Caterpillar and Peurifoy methods?
They are approaches to estimating total equipment costs.
Exactly! Understanding these methods will help you manage operational efficiency well.
Impact of Job Conditions
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Job conditions can significantly influence operating costs. Who can explain why serious conditions raise costs?
They cause more wear and tear, which leads to more repairs and higher fuel usage.
Exactly! For instance, operating in a quarry is tougher on machines than on regular earth. How would you summarize this?
OPC - 'Operating Costs Go Up' in harsh conditions!
Great mnemonic! This helps ground the idea.
Introduction & Overview
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Quick Overview
Standard
The lecture covers how to estimate operating costs for construction equipment, which vary based on usage and job conditions. Key components include consumables, wages for operators, and maintenance costs. It emphasizes the significance of understanding these costs for effective equipment management and estimation methods such as the Caterpillar and Peurifoy methods.
Detailed
Detailed Summary
In this lecture, we explore the essential aspects of operating costs associated with construction equipment. Operating costs are incurred only when equipment is utilized, contrasting sharply with ownership costs, which are fixed and endured regardless of use. Key components of operating costs include consumables (fuel, lubrication oil, and minor repair costs), operator wages, and maintenance expenses.
The variability of operating costs is highlighted, stressing that it depends on equipment usage and job conditions. For instance, using an excavator in tough conditions (like a quarry) will incur higher operating costs due to increased wear and fuel consumption than in average conditions at a construction site.
Maintenance and repair costs form a significant portion of operating costs, particularly as the equipment ages. Preventive maintenance plays a crucial role in managing these costs. The lecture also covers methods for estimating total equipment costs, specifically the Caterpillar and Peurifoy methods, as well as how to derive estimates from past experience and manufacturer guidelines. Understanding and estimating these costs are crucial for effective equipment management in construction projects.
Audio Book
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Introduction to Operating Cost
Chapter 1 of 8
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Chapter Content
Operating costs occur only when the equipment is used, unlike ownership costs that are incurred whether or not the equipment is operated.
Detailed Explanation
Operating costs are expenses that arise only when equipment is actively used on a project. In contrast, ownership costs, such as depreciation and insurance, must be paid regardless of the equipment's operational status. This means if a piece of equipment is idle, the owner will still incur ownership costs but not operating costs.
Examples & Analogies
Imagine renting a car. You will pay a rental fee (ownership cost), regardless of whether you drive it or not. However, you'll only pay for petrol (operating cost) when you actually use the car.
Components of Operating Cost
Chapter 2 of 8
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Chapter Content
Components of operating cost include consumables like fuel, lubrication oil, and maintenance costs. Maintenance costs can be categorized as major or minor based on the degree of repair required.
Detailed Explanation
The operating cost includes several specific costs. Consumables such as fuel and lubricants essential for the equipment's functioning are a major part of these costs. Additionally, labor wages for operators are included in the operating costs. Maintenance can be classified into major and minor categories; minor repairs are part of operating costs while major repairs, which require significant investment, fall under ownership costs.
Examples & Analogies
Consider a bicycle. The costs to add oil or replace a tire (consumables) are akin to operating costs, while buying a new bike to replace an old one is like ownership cost since it is a substantial investment made regardless of whether you ride it frequently.
Variability of Operating Costs
Chapter 3 of 8
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Chapter Content
Operating costs vary significantly based on equipment usage, the number of operating hours, job conditions, and the type of job being performed.
Detailed Explanation
As operating hours increase, so do costs linked to fuel consumption, repairs, and maintenance. Additionally, the conditions under which the equipment operates can lead to different operating costs—working in challenging conditions will generally lead to higher wear and tear and necessitate more repairs compared to operating under milder conditions.
Examples & Analogies
Think of two cars, one driven mainly on smooth highways and the other often used on pothole-filled city streets. The city car will likely need more servicing and repairs, thus incurring higher operating costs than the one mostly on highways, which experiences less wear and tear.
Estimating Operating Costs
Chapter 4 of 8
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Chapter Content
To estimate operating costs, historical data and manufacturer recommendations can provide valuable insights.
Detailed Explanation
Accurate estimation of operating costs can often be based on historical data gathered from past projects with similar equipment under comparable conditions. Additionally, manufacturer handbooks often contain estimated operating costs for their equipment based on various operating conditions, which can help provide a more accurate cost prediction.
Examples & Analogies
Just as a chef might refer to a cookbook for ingredient quantities based on past experiences, a construction manager can refer to historical data and manufacturer handbooks to project costs for machinery usage.
Maintenance and Repair Costs
Chapter 5 of 8
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Chapter Content
Maintenance and repair costs increase as the machine ages. These costs vary depending on usage and job conditions.
Detailed Explanation
The older a piece of machinery gets, the more maintenance it typically requires due to increased wear and tear. This means costs for repairs will rise over time. Moreover, if a machine is subjected to tough job conditions, the maintenance costs are likely to increase even further.
Examples & Analogies
Think of an old car; as it ages, it might need more frequent oil changes, tire replacements, and other maintenance to keep it running smoothly. Similarly, construction equipment requires more attention as it accumulates operational hours.
Estimating Hourly Repair Costs
Chapter 6 of 8
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Chapter Content
A formula based on years of operation and sum of the years' digits helps estimate repair costs efficiently.
Detailed Explanation
The hourly repair cost can be estimated using a formula that considers the operational years. This involves calculating a ratio based on the current year of operation compared to the total years of the machine's useful life, adjusted by the lifetime repair cost and total operating hours.
Examples & Analogies
Imagine a school where the cost of maintenance for textbooks increases as the books get older. Estimating how much money to set aside for each year is similar; you look at how long the books will be in use and adjust based on their age.
Tire Costs
Chapter 7 of 8
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Chapter Content
Tire costs are a unique part of operating costs and require careful estimate considering various factors like usage and repair needs.
Detailed Explanation
Estimating tire costs can be complex due to various factors that influence tire life, such as project conditions and operator skill. Tire costs largely differ from other parts of equipment because of their shorter lifespan and faster depreciation. A typical approach is to add around 15% to the cost of tire replacement for repair needs.
Examples & Analogies
Consider a person who frequently drives on rough terrain versus someone who drives only on well-maintained roads. The person on rough terrain will need more tire repairs and replacements, leading to a different cost structure for maintaining the vehicle.
Consumables Cost
Chapter 8 of 8
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Chapter Content
Consumables like fuel, oil, and other small parts represent critical components of operating costs.
Detailed Explanation
Fuel consumption is influenced by the machine's engine type and horsepower, and the actual operating time may differ from total hours due to efficiency and load factors. Identifying the right fuel consumption rates based on these equipment and job characteristics helps in precise cost calculation.
Examples & Analogies
When baking bread, the type and amount of flour (fuel) used affects the bread's quality. Similarly, in construction, how and when machinery is used affects its fuel consumption, especially under varying job conditions.
Key Concepts
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Operating Costs: Costs incurred when equipment is in use, dependent on usage.
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Ownership Costs: Fixed costs incurred regardless of equipment use.
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Components of Operating Costs: Include consumables, wages, and maintenance.
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Estimation Methods: Includes industry-standard methods for determining total equipment costs.
Examples & Applications
An excavator used in a quarry incurs higher operating costs due to more fuel consumption and more frequent repairs compared to one used at a standard construction site.
An aggregate crusher is expected to have higher operating costs when used in a rocky terrain compared to a sophisticated electric motor used in a stable condition.
Memory Aids
Interactive tools to help you remember key concepts
Rhymes
In the operating zone, costs can climb, when machines work hard, save a dime!
Stories
Imagine a hardworking excavator in a quarry, its strength is tested; it gulps fuel by the minute, racking up costs as wear catches up, while the idle one rests, carefree.
Memory Tools
COW - Consumables, Operating hours, Wages, help remember the core components of operating costs.
Acronyms
PEACE - Preventive maintenance Extends Active cost-effectiveness.
Flash Cards
Glossary
- Operating Cost
Costs that occur only when the equipment is in use, varying based on utilization.
- Ownership Cost
Fixed costs incurred regardless of equipment usage.
- Consumables
Products used during equipment operation, such as fuels and lubricants.
- Wages
Payments made to operators for their work operating the equipment.
- Maintenance and Repair Cost
Costs associated with the upkeep and minor repairs of equipment.
Reference links
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