2. Ownership Cost Calculation

So just add up everything the ownership cost all the operating cost and operating wages also you will get the total ownership and the operating cost following the Peurifoy guidelines.

Ownership costs include the total costs associated with owning and operating a piece of equipment. This encompasses not just the actual purchase price but also other costs such as repairs, insurance, and operating wages. To calculate these costs accurately, guidelines such as those from Peurifoy are followed, which provide a systematic way to include all relevant expenses.

Think of this like calculating the total cost of owning a car. You not only consider the vehicle's purchase price but also insurance, fuel, maintenance, and repairs over time.

So you can see this problem in this problem you can estimate the cost for the dump truck. It is off highway truck, why we call it as off highway? This truck is not permitted on the public highways.

This example highlights a specific type of equipment, the dump truck, which is categorized as an 'off-highway truck.' Such vehicles are designed for operations at project sites and cannot be operated on public roads, affecting their cost and usage characteristics. Understanding these distinctions is critical when estimating ownership costs because they influence operational hours and maintenance needs.

Imagine a construction site where only specific trucks can operate. Just like some trucks can't drive on regular streets, certain project machines are tailored for specific environments.

The initial cost is given so it was purchased with the deliver price of 3 crores. The tire cost of this machine is 11 lakhs. The requirements are according to the type of the machine for which you are going to estimate.

The initial purchase price of the dump truck is 3 crores, with an additional tire cost of 11 lakhs. These costs form the basis for calculating the total ownership cost. When estimating costs, it's important to reference appropriate guidelines and user manuals to ensure that these values are accurate and relevant to the specific equipment.

When buying a laptop, the initial cost includes not just the device but also essential accessories like a charger or a case. Similarly, in equipment ownership, all associated costs must be considered.

The truck is expected to have annual use of 1600 hours. The local cost of the fuel in the particular space is 65 rupees per liter and the operating cost the wages per hour is 200 rupees per hour.

Understanding the expected usage (1600 hours annually) helps in estimating the operational costs associated with the dump truck. Fuel costs and operator wages are recurring expenses that must be factored into the total ownership costs. Fuel price, set at 65 rupees per liter, and operating wages of 200 rupees per hour illustrate how basic operational expenses are calculated in an ownership cost model.

Similar to how a family estimates their yearly fuel usage for a car (e.g., if you drive 1600 miles per year), estimating equipment usage helps predict fuel and operating costs accurately.

Now we shall calculate the depreciation first. (𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 − 𝑇𝑖𝑟𝑒 𝑐𝑜𝑠𝑡) 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒.

Depreciation represents the loss in value of the equipment over time. In this case, it's calculated by taking the initial purchase price and deducting the tire cost, dividing the result by the effective life span of the machine, 12.5 years. This method provides a systematic way of distributing the initial investment across the equipment's useful life, reflecting its gradual loss of value.

Think of how a new car loses value each year. Similarly, equipment like dump trucks experiences depreciation, which is an essential factor in total ownership cost calculations.

Total hourly ownership cost = 1445 + 780.30 + 195.08 + 292.61 = ₹ 2713.00/hr.

The total hourly ownership cost is derived by adding together the different components: hourly depreciation, interest, insurance, and taxes. This gives a comprehensive view of what it costs to own and operate the equipment on an hourly basis, an important consideration for budgeting and project costing.

When you calculate how much you spend on living independently each month, you must count rent, utilities, groceries, etc. Just like that, project managers must account for all ownership costs to understand the total equipment costs.

Now let us move on to the operating cost estimation... Total hourly operating cost = 1462.50 + 139.23 + 523.81 + 1083.75 = ₹ 3209.29/hr.

Operations costs include fuel costs, filter oil grease costs, tire costs, and repair costs all calculated on an hourly basis. This summation provides a clear picture of the recurring costs involved in running equipment over time, vital for effective resource allocation in projects.

Similar to running a household where you need to account for all monthly expenses (groceries, electricity bills), understanding operating costs helps project managers predict and allocate funds effectively.

--