3. Recap of Previous Lecture

In the previous lecture, we have seen how to estimate the ownership cost using the time value method.

This chunk refers to the main focus of the last lecture, which was about estimating ownership costs. Ownership costs are expenses incurred from owning equipment, regardless of whether it is in use or not. The time value method mentioned relates to how these costs may change over time based on various factors, such as depreciation.

Think of ownership costs like the monthly mortgage payment on a house. You have to pay it regardless of whether you live in the house or rent it out. Similarly, equipment incurs costs just by being owned.

In today's presentation, I will introduce what the components of the operating cost of the equipment are.

Operating costs are expenses incurred when the equipment is actually in use. Unlike ownership costs, which are stable and continuous, operating costs can fluctuate based on how much the equipment is used, including fuel, maintenance, and labor costs.

Imagine you own a car. The ownership cost would be the monthly insurance and registration fees, while operating costs would include the gas you buy and the oil changes you perform. The more you drive, the higher your gas and maintenance costs will be.

Operating costs include consumables, operator wages, and maintenance and repair costs.

This segment breaks down operating costs further into three main categories: consumables (fuel, oil, filters), wages for the operators who run the equipment, and maintenance/repair costs. Maintenance costs can vary significantly depending on whether the repairs are minor or major, affecting the overall operating budget.

Think of owning a smartphone. The consumable costs are like the charging cable you may need to replace, the wage costs could relate to the service fee for tech support, and the maintenance could be akin to the occasional screen repair that may or may not be required depending on usage.

Operating costs are highly variable and depend on usage and job conditions.

This chunk discusses how operating costs can change dramatically based on how much equipment is used and the conditions under which it operates. For example, equipment working in tough conditions will have higher fuel consumption and repair costs than the same equipment working in easier conditions.

Consider a pair of shoes. If you wear them regularly on rough terrain, they'll wear out more quickly compared to wearing them occasionally on smooth pavement. Similarly, heavy use in tough conditions leads to increased operating costs.

Information on operating costs can be obtained from past experience records or manufacturer recommendations.

Accurate estimation of operating costs requires using historical data from similar past projects or guidelines provided by equipment manufacturers, which can offer invaluable insights based on equipment type and conditions.

It's like keeping a journal of your monthly grocery spending. By looking back at your records, you can better predict how much you might spend next month compared to just guessing. Similarly, historical data helps predict future costs.

Maintenance and repair costs significantly contribute to the operating costs and vary with the age of the equipment.

As equipment ages, maintenance needs typically increase due to wear and tear. This part explains both minor and major repairs, emphasizing the importance of ongoing maintenance to avoid larger unexpected expenses.

Think of owning a pet. The older they get, the more prone they become to illnesses that require vet visits. Regular check-ups (like maintenance) can help catch issues early before they turn into expensive treatments (like major repairs).

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