UNIT 4 OPERATING COST OF

CONSTRUCTION EQUIPMENT
Structure
4.1 Introduction
Objectives

4.2 Operating Personnel

4.3 POL
4.4 Electric Power
4.5 Cost, Taxes, Insurance and Storage
4.6 Erection, Dismantling and Shifting
4.6.1 Esection
4.6.2 Dismantling
4.6.3 Shifting

4.7 Downtime
4.8 Non-availability of Workfront
4.9 Preventive Maintenance
4.10 Mismatch of Equipment
4.11 Desirable Objectives
4.12 Monitoring Equipment Costs
4.13 Summary
4.14 Answers to SAQs

4.1 INTRODUCTION
- -

To manage an equipment fleet properly, it is necessary that accurate records be kept of all
operating cost. This not only provides management information for bidding purposes, but
indirectly assists in determining replacement. Supplemental records should be maintained at
the job level to record downtime, availability and performance. Management should
carefully analyse all related costs, including layout rates, sources of parts and transportation
expenses.
Operating costs include operator's wages, cost of fuel, lubricants and other consumables,
cost of transportation, erection, dismantling, insurance charges, etc. All these costs are to be
accounted for in the case of all construction equipment and plant.

Objectives
By the end of this unit you should be able to explain how the operating cost of construction
equipment is detennined in respect of
operating personnel,
POL,
electric power,
fees, licences, insurance, etc.,
erection, dismantling and shifting,
downtime,
non-availability of workfront,
preventive maintenance, and
mismatch of equipment, the desirable objectives and monitoring of equipment
costs.
Opc&dCoarb.ckia
k+b- 4.2 OPERATING PERSONNEL
The operating cost of a construction equipment will include the charges of the operating
personnel. 'Ihey include the salaries of workmen, such as operators, helpers, mechanics.
greasers, etc. employed for operating the equipment. In additiop, the wages of supervisory
staff (foremen, chargemen, time-keeper, etc.) may also be added. Provision of leave reserves
to the extent of about 10 to 20 % of the cost of operating personnel should be made under
this head.
Tbe salaries of staff vary from project to project and from one category to another on the
same project. The pay scales of the staff are frequently revised, and all available information
pertaining to the project area should be utilised in estimating the cost of operating personnel.
a SAQ1
Wow are the charges payable to operating personnel included in the operating cost
of a construction equipment?

4.3. POL
Construction equipdnt commonly use diesel or petrol engines as prime movers. 'Ihe actual
consumption of fuel in working of an IC engine would &pend upon the engine BHP, the
load factor at which it is worked and the condition of the engine. The probable consumption
for engines working at full load and at constant speed under favourable conditions can be
computed by using the following rules:
Diesel Engine
Fuel consumption per BHP per hour = 0.1814 litres
Fuel consumption per m HP per hour = 0.15 litres
Fuel consumption per kwh = 0.205 litres
Petrol Engine
Fuel consumption per BHPper hour = 0.27276 litres
Fuel consumption per m HP per hour = 0.225 litres
Fuel consumption per kwh = 0.307 litres
In actual working the engine may not run over about 60%load factor. Therefore, necessary
correction for load factor should be made to determine average probable consumption of
fuel by an engine. Caterpillars have recommended the following load factors for cranes and
excavators:
Cranes 30-50%
Clamshells and draglines 40 - 60 8
Shovels and backhoes 50-7096
For diesel powered equipment, in general, the fuel consumed per hour can be estimated
from the following relationship.
Fuel consumed in litres per hour = 0.22 x FHP X C1 X C2

where,
Ci = factor for category of equipment, and
C2 = i'actor for type of duty to which it is put in use,
 Table 4.1 : Multiplying Factors for Construction Equipment Operating Cost of
Construction Equipment

I S1.

1)
Category of Equipment

Dump Truck
C1 ,Type
Factor

0.30
Light Duty

0.70
c2

Medium Duty
1.00
Heavy Duty
1.40

2) Motor Grader 0.40 0.67 1.00 1.33

3) Excavator 0.50 0.80 1.00 1.20

I 4, 1 Wheel Loader 1 0.58 1 0.70 1 1.00 / 1.30 1

Motorised Scraper
a) Twin Engine
b) Single Engine
0.57
0.62
0.70
0.70
1.00
1.00
1
I
1.30
1.30

1 6) 1 Bulldozer 1 0.57 1 0.75 1 1.00 1 1.25 1

1 7, 1 Dozer Shovel 1 0.61 0.75 / 1.00 1 1.25 1
Diesel Generator Sets 1 .OO 0.75 1.00 1.25 1
I I I I I
1 9) 1 Air Compressors I 1.00 / 0.75 1 1.00 1 1.25 1
The lubricants include engine oil, air filter oil, ,transmissionoil, greases and hydraulic oil.
The requirements can be assessed on the basis of information supplied by manufacturer of
the equipment, who would also specify the type and grade of lubricant to be used. The
actual consumption by a machine depends upon its condition and the need for topping, in
addition to the periodic oil changes. A rule of thumb which may be used to estimate the cost
of lubricants is to take about 30 % of the fuel cost in case of diesel engines and about 20 %
of the fuel cost in case of petrol engines, as the cost for oils and lubricants.

I) How arc the fuel charges Lor c.onstlucllon equlprrierlt computetl'!

11 1 How arc tlie costs of lubricants considcretl in fmding rhc npcrating cosl of a
construct~cmcqukplnerit 'I

4.4 ELECTRIC POWER

-- - - -

For construction equipment electric'motors are commonly used as prime movers. For
electric motors, energy charges may be calculated on the basis of motor rating and operating
load factor. Estimated power consumption for electric shovels as given by Caterpillars is
shown below:
Size of machine (cum) 4.6 6.1 7.6 99 11.4 13 19
Power consumption (kwh) 225 300 375 475 620 740 1250
In case of general electrically operated equipment, the energy charges can be obtained by
estimating energy consumed in kwh and multiplying it by the energy rate.

c2
Energy consumed = BHP x 746 x C1x -
1000

where,
Ci = factor for category of equipment, and
C2 = factor for type of duty to which it is put to use.
The values of C1 and C2 are given in Table 4.1.
Operation of C O M ~ N ~ O ~
Equipment SAQ 3
How ;Ire the energy charges conaputetI for equipment working on electxicity'!

4.5 COST, TAXES, INSURANCE AND STORAGE

The costs payable towards purchase, taxes, insurance and storage are termed as investment
cost. How the investment costs are applicable is discussed below.
The investment cost is in the nature of a fixed cost which continues to be incurred whether
the equipment is used or not. The cost comprises interest on the money invested in acquiring
the equipment, taxes pertaining to ownership of the equipment, insurance and storage. The
money spent in purchase of equipment, if invested in a bank of some other interest bearing
asset instead, would bring a return of interest. The prospect of earning this interest is lost
due to purchase of the equipment, and so the recovery of this amount should be made on the
machine's account. The rate of interest may depend upon prevailing bank rate of the
country. The amount of taxes, insurance charge and storage cost are usually considered, like
interest, a percentage of average investment. For most estimates the combined investment
cost including interest, taxes, insurance and storage may be taken as about 10 % to 15 % of
the average investment.
The capital cost of the equipment does not remain the same as the initial investment for its
entire life but continues to decrease with time. Since the investment is considered at the
beginning of each year, the cost of the equipment at the beginning of the year of its life
should be taken as the investment during that year.
It is, therefore, necessary to compute the annual investment cost on the basis of actual
intrinsic worth of the equipment during each year of its life. In practice, however, it is more
convenient to compute an average value of the equipment during its entire useful life. This
average value may be found as a 5% of original cost by using the formula

Average cost as % of original = I(1.+ n)2nx 1001

where,
n = useful life of the equipment in years.
In order to find the average investment, the original cost of the equipment and its anticipated
useful life must be known. ?he total capital cost of the equipment should include, beside the
price paid to the manufacturer or supplier, all such other costs as are incurred in connection
with locating the equipment at the site of work. Thus, the total cost may comprise :
1) price, fob with all attachments and accessories,
2) shipping and insurance charges,
3) expenses for loading, unloading and clearance, including custom duty,
4) cost of inland txansportation, including loading into wagons and unloading,
5) transportation cost to the work site, and
6) erection and commissioning cost.
The fob price should include the cost of the equipment with all attachments and accessories.
Shipping, transportation, loading and unloading, charges would depend upon the weight and
size of the equipment, and erection and commissioning cost on the type and size.
-P.r-

SAQ 4
!
i) What is the investment cost of a machine?
ii) What charges or costs are included in total capital cost?
 Operating Cost of
4.6 ERECTION, DISMANTLING AND SHIFTING Construction Equipment

Charges towards erection, dismantling and shifting are to be included in the operating cost
of construction equipment.
4.6.1 Erection
Certain equipment and plant are assembled after being received at the job site from the
manufacturer's premises. These include equipment like batching and mixing plant,
aggregate processing plant, etc. The facilities required to install the equipment may be
cranes, winches, hoists besides others. The facilities may be available with the contractor or
he may have to hire them for purposes of erecting the plant. The cost towards hiring these
facilihes, their transportation and return to the owner have to be included in the cost of the
construchon plant.
4.6.2 Dismantling
After the project has been completed and there is no need for the plant or equipment, the
same has to be dismantled before it can be shifted to some other project or location. Again
facilities like cranes, winches and hoists may be acquired from some hiring agency for
dismantling the equipment. Cost of such facilities are to be considered while working out
the cost of the construction equipment or plant.
4.6.3 Shifting
The charges for transportation of equipment from the manufacturers premises on the first
shipment is capitalised with the cost of the machine. The cost of further shifting of
equipment on the project is payable by the receiving job. If the equipment is not shifted to
another job, the last using job would normally bay for the return of equipment to the
owner's store or yard.
In the case of rail transportation, it is important to investigate the possibility of "Storage in
transit" particularly in regard to the home office or yard. "Storage in transit" is a term used
when commodities including equipment, are shipped from one point to another point of
storage and after storage are shipped on to a third point. The railways normally offer special
rates under these circumstances that result in substantial savings.

SAQ 5
1) What are erection charges')
11) Why are disrnantling costs nduded'!
111) How are chrirges tor shi!ttng an equjprnent ;\ccounted tor m the operating cost?

4.7 DOWNTIME
The modern trend is toward faster, more productive-and more expensive-machines. As
productivity increases, the cost of lost time due to machine breakdown also rises.
Downbme is the time that an equipment is not working because it is undergoing repairs or
adjustments. Downhme increases with usage. Equipment availability is a term that indicates
the portion of the time that a machine is in actual production or is available for production,
expressed as a percent. For example, if a machine is down 5% of the time, its availability is
95%. Downhme should not be considered if productwity of the machine is not actually
required. The equipment must have been scheduled to operate, and conditions such that it
could have been operated.
Although it is desirable to have 100%machine availability, usage generally results in
Increased downtime as a machine grows older. This loss of machme availability can vary
greatly with the make, age and especially the service provided. Actual records should be
used in computing downtime expense.
To be complete, an evaluation of an acceptable level of downtime must take into account the
economics of field repairs versus home shop repairs versus dealer repairs. It must consider 39
Operation of Construction the level of parts a dealer may consign to a job as opposed to a purchased inventory. For the
~nuipment more complex assemblies, the specialised training of the dealer must be weighed against the
training of the equipment owner's mechanic.

4.7.1 Downtime Analysis

The maintenance records must provide for an acceptable level of downtime analysis, from
the records themselves. Table 4.2 shows a typical record.
Table 4.2 : Record of Downtime of Dozer

Date Item Fault Downtime, hrs

r

1 Main panel Fuse blown 0.1

2 Blade Main arm came off 1.3
6 Gear box Gear box shaft broken 0.5
(spare gearbox fitted)
10 Radiator Burst pipe (guard fitted) 0.3
11 Tracks One link snapped (replaced 1 0.4
- --
19 Diesel tank Punctured (welded) 3.0

22 Gear stick Knob broken (replaced) 0.3

-
-- -

26 Radiator Burst pipe (repaired and refitted) 0.5

- -
Information produced in this way includes :
1) An indication of downtime per structure of work, per equipment, or if necessary
per operator.
2) The time taken for fault diagnosis and repair on various types of fault, or on
specific equipment, or by various personnel.
3) Indications of the cause of breakdown.
Among the useful points made clear by Analysis A may be:
I ) The true ratio of downtime to use time (to answer rumours or inaccuracies
being quoted against the maintenance department).
2) The need for further investigation, by the operation and maintenance
managements, of high downtime.
3)The relationships between operator and the downtime on
individual equipment.
Analysis B may help to define:
1) High downtime areas where permanent standby repair staff or field workshops
might be beneficial.
2) Suppliers to be avoided on future procurement.
3) A requirement for specific training for maintenance crew (e.g. electron~cfault
finding).
4)The most efficient members of the maintenance staff for the various types of
work (fault-diagnosis, repairs, renewals, etc.).
Analysis C will define:
1) The spare parts and materials requirements for the various equipment.
2) Any requirement for increased operator training.
3) Problems caused by variations in the product materials used in the construction
processes.
It will be seen that downtime analysis is complementary to any cost analysis work.
However, downtime recording in detail is relatively expensive and, may be applied only in
certain areas rather than generally. The areas chosen may be high risk area containing plant
which is vital to a high production rate, or may be areas of rising maintenance cost as
defined by the normal cost summary, or areas in which large consequential losses could
occur.
Equipment downtime should never exceed 7 percent of the available working hours and Operaling Cost of
Comtrudion Equipment
should average less than 5 percent. The concept of downtime control is extremely important
in terms of total capital investment in the equipment fleet. Assuming a 200 unit fleet, a 7
percent downtime factor would result in 14 units out of service for maintenance or repair on
any given day. If this could be reduced to 5 percent by application of management effort in
the maintenance function, the out-of-service unit would be 10 per day. This would provide 4
more units per day for operational requirements, or conversely avoid the purchase of 4
additional units.
sny 6
i) Explairi what is dow~ltiineo f a machilie'!
11) HOWare downlimo costs computetl?
I ~ J ) Wow is dnwntime control excrascd'!

4.8 NON-AVAILABILITY OF WORKFRONT

Due to non-availability of workfront, Ule equipment will not be productive. However, some
expenses will be incurred on the idle equipment by way of security. watch and ward, etc.
Thus, the unproductive machine will have to be charged when no workfront is available.
Since the security and other expenditure will be covering a number of equipment kept in the
storage yard, their cost should be divided equally amongst all the equipment for the period
of retention in the yard. Thus, when an equipment is idle some charges are to be levied on
this account.

SA<) 7
H i 1 w arc charges levied for rion-nvailab191ty01 worktront

4.9 PREVENTIVE MAINTENANCE

Maintenance cost includes cost of materials and spare parts, labour and overheads of
maintenance organisation. As against these costs, the benefits achieved through a proper
maintenance programme include: efficient operation of machines and prevention of
downtime. A judicious maintenance programme should balance the costs against the
benefits.
Each element of cost and benefits vanes with the degree of maintenance effort expended in
the programme. The degree of maintenance effort may be defined as the frequency of
lubrication, inspections, repairs, replacements, adjustments and cleaning, and the amount of
supervision and planning involved in it. A high degree of maintenance would cause very
frequent inspection and servicing, and would exclude chances of any breakdowns and
emergencies. A low degree of maintenance, would, on thc other hand, comprise
maintenance at long intervals or upon breakdown. The relationship between the cost of each
component and the degree of maintenance needs to ascertain the optimum level of
maintenance for an equipment.
The elements of total cost of maintenance are :
a) cost of labour and overheads of maintenance department,
b) cost of materials including spare parts,
c) loss in production due to inefficient operation, and
d) ioss due to downtime.
As the degree of maintenance effort is increased, the costs of labour and overheads tend to
increase, slowly at first but sharply later. The higher degree of maintenance increases
effective life of machine parts resulting in a lower rate of material and spare parts
operation of corntruetion consumption. However, if the degree of maintenance increases very much it would mean
Enuipm@ very frequent replacement of parts thereby increasing the cost of materials and spare parts.
The losses due to inefficient operation reduce as the degree of maintenance effort is
increased: and can, in the extreme case, be reduced to zero. These losses are difficult to
estimate. However. a comparison of standard expected output of the machine with the
output attained could be used as a measure of this loss. Downtime costs are incurred when
the machine is rendered unproductive by being stopped for inspection and repairs or while
under a breakdown. These costs reduce, sharply in the beginning as the degree of
maintenance increases. After reaching a minimum level they start increasing due to
over-maintenance. Figure 4.1 shows the variation of the different costs with the degree of
maintenance effort.

LOW HlQH

DEGREE OF MAINTENANCE

Figure 4.1 :Variation or Elemenb or Cost with Degree or Maintenance

-
A Downtime Cost
-
B Material and Spare Parts Cost
-
C Labour and Overhead Cost
D - Loss due to Inemcient Operation

An optimal plan of maintenance is one that gives the lowest total cost. The different costs
are summed up tor each degree of maintenance effort and a curve of total cost vs degree of
maintenance is plotted. From this curve the point of minimum cost is found which gives the
optimum level of maintenance for the equipment under study. Such a curve is shown in
Figure 4.2.
I
HIGH

COST

l OPTIMUM

LOW I
LOW HIGH
DEGREE OF MAINTENANCE

Figure 4.2 :Relation between Total Cost of Maintenance and Degree of Maintenance

The principles in optimizing preventive maintenance costs is illustrated by the following

example.
 Example 4.1 Operating Cost of
Construction Equipment
A screening plant has to be stopped for adjustments, cleaning and other
maintenance work periodically. The plant works for 24 hours every day, and for
7 days every week. The following information about cost is available:
a) Downtime cost for idle staff, overhead, etc. is Rs. 10 per hour.

rs t b)
c)
Cleaning and servicing require 12 hours and cost Rs. 130.
The fall in production, cost of material and spares, cost of labour and overhead
for repairs, and breakdown hours are as given in Table 4.3.

Table 4.3 :Cost of Screening Plant

Frequency of
Servicing
I Value of
Production
Cost of
Material and
Cost of
Labour and Downtime
(Weeks) per Week (Rs.) SparesMreek Overheads (hrs.)
(b.1 per Week (Rs.)

Solution
The different elements of cost are calculated in Table 4.4.

Table 4.4

Frequency Downtime Cost Cleaning & Cost of Cost of Loss of

of (Rs/Week) Servicing Material Labour and Production Cost
Servicing Cost and
(Weeks) (RslWeek) Sparedweek per Week
(Rs/Week) (Rs/Week)

1 ( 1 2 + 0 ) x 10 130 75 80 0 405 .OO

I 2 (12 + 0 + 4 ) x 1012 13012 = 65.00 60 57 0

= 80.00
I

3 ( 1 2 + 0 + 4 + 1 0 ) ~ 13013=43.33 66 * 42 (2200 - 2 100)13 27 1.33

1013 = 86.77 = 33.33

4 ( 12+0+4+10+20) x 13014 = 32.50 96 32 [(33.33 x 4)+ 375.50

1014 = 115.00 (2200 - 1900)]14
= 100.00

5 ( 12+0+4+10+20+35) 13016 = 26.00 132 25 [(I00 x 4)+ 545.OO

x 1015 (2200 - 1 600)]15
= 162.00 = 200.00
I
6 (12+0+4+10+20+ 130/7=21.67 180 20 [(200 x 5)+ 823.34
35+60) x 1016 (2200 - 1OOO)]16
= 235.00 = 366.67

The above results show that the lowest cost would be achieved when the frequency is
between 2 and 3 weeks. The exact value can be found by plotting the curve of total cost vs
frequency of maintenance, and reading the frequency for minimum total cost.
Operation of Corntruetion
Equipment
SAQ 8
i) What IS meant hy inaintcnrtnce cost'?
ii) How are maintenance cost and bcnef~t related?
iii) What are the eleinents of cost of maintenance?
iv) How do you define an optimal plan of maintenance'!

4.10 MISMATCH OF EQUIPMENT

When two pieces of equipment are to work as a team, the two should be properly matched.
By proper matching, the production of one equipment will be received by the second
equipment without loss of time. An example often quoted is that of a power shovel loading
material into a dump truck. One power shovel may serve a number of dump trucks. If the
number of trucks are less than the production of the shovel, the shovel is underworked.
Similarly, if the number of trucks are more than the production of the shovel, the trucks
remain idle and underworked. Both situations will increase the cost of material handled in
terms of loading and transport, and the two types of equipment are mismatched. The better
of the two combinations is one in which the total cost of loading and carriage is the lesser.

SAQ 9
l cost of a unlL
Whcn two machines working as a t a r n are rnisn~atched,how w ~ l (hc
i t a n of work be aftected?

4.11 DESIRABLE OBJECTIVES

The objectives of the equipment owner are to be fulfilled through proper costing records. A
maintenance cost system is necessary to protect an agency's high capital investment in
construction equipment. It permits the control of good service procedures and the
prevention of excessive operating costs due to overmaintenance or inadequate maintenance.
It should enable the owner to price his work more intelligently. The fulfillment of these
objectives should govern efforts to develop effective information systems. So long as
construction projects are of shorter duration than the life of equipment, the control of
equipment costs will be a major challenge.

SAQ 10 I

How do costing records help an equipment owner in his objectives'!

4.12 MONITORING EQUIPMENT COSTS

Equipment cost estimates should continuously be monitored and maintained to provide a
measure of performance for project managers and to permit budgetary control over
equipment cost. The level at which budgetary control of maintenance is attempted varies
significantly between constructing agencies. Most agencies record their cost to the
individual piece of equipment by type of expenditure. A typical breakdown of the types of
expenditure used is
1) labour,
2) parts,
 3) tyres and tubes. Operating Cost of
Comtrudion Quipment
4) lubrication aid preventive maintendance.
5) accident repairs, and
6) special modifications.
Along with the maintenance expenditures, depreciation and other ownership costs are
normally charged ti) the individual equipment numbers.
)C

S.4Q li 1
Why i s ~rionrtoringof equiprileill costs nt!ccss;rry'!

4.13 SUMMARY
In Ulis unit you learnt how the operating cost of a construction equipment is to be computed.
The various components of cost. which include operating personnel, POL, electric power,
actual cost, taxes, insurance and storage, erection, dismantling and shifting are to be
considered to arrive at a proper cost figure. How downtime is anaIysed and equipment costs
are monitored are discussed.

4.14 ANSWERS TO SAOs

Check answers of a11 SAQs with respective preceding text.