Holly Welles, Contributing Writer
Heavy equipment is one of the most substantial costs for any construction firm. This machinery is essential to the job, but its precise value changes depending on how companies acquire, maintain and use it. To make the most of these investments, firms need to know what they need and what they can afford.
There's no single answer to whether it's better to buy or rent heavy machinery. Similarly, whether it's more affordable to repair or replace equipment varies from situation to situation. Given how many variables are involved, data-driven cost analysis can be an invaluable resource.
Advantages of cost analysis in heavy machinery
A rule of thumb is that if a firm uses equipment 60 percent of the time or more, it's better to buy than to rent. Still, this may vary depending on local options, and not every decision can be made with a straightforward formula. That's where cost analysis comes in.
At a certain point, all equipment will become more trouble than it's worth to maintain. Companies can gather and analyze data to determine how long it will be before they should consider a replacement. When it comes time to retire something, cost analysis can help make the most informed purchase.
Just as data can reveal when it's appropriate to either repair or replace machinery, it can show the actual costs of new machines. Anyone who's ever owned a piece of heavy equipment can attest that cost goes far beyond something's initial price tag. So how does one go about gathering and analyzing this information?
Ownership costs
Cost analysis falls into two broad categories: ownership costs and operating costs. Within each of these categories are several independent figures, all adding up to a general price prediction. Ownership, for example, includes everything involved with acquiring and keeping equipment.
The most obvious number to consider here is the price tag, but that's not all ownership includes. Heavy equipment is expensive, so interest rates usually factor in since financing is more common than one-time payments. Other things to consider are insurance, taxes, storage, and eventual disposal.
To determine all these, firms need to look at a variety of local options. Prices will vary depending on location, so national averages aren't accurate enough. After finding a local price range for each of these considerations, total them using the higher numbers to be safe.
Operating costs
The cost of ownership isn't the only variable at play in using heavy equipment. Companies also need to determine operating costs for however long a machine will be serviceable. Equipment lifespan can range anywhere from seven to 50 years, so finding an average is crucial before calculating the rest.
Operating costs include fuel, labor, maintenance, repairs, tires, and fluids. Like with ownership expenses, these will vary from region to region, so local numbers are necessary. Unlike ownership costs, though, operating expenses also depend on depreciation and usage.
How fast a machine depreciates will affect operating costs. This figure changes depending on how often a company uses the equipment, its environmental conditions, and the resilience of the device itself. Since this number is so complex, analysis tools like fleet management software and big data analysis can be helpful.
Plenty of unforeseen circumstances can affect these numbers. Installing the Internet of Things (IoT) sensors on equipment can help gather hard data that would be otherwise inaccessible. By turning to technology for information gathering and analysis, companies remove a lot of the guesswork.
Analysis can inform all business decisions
In today's digital age, anyone can find data points on just about anything. With investments as substantial as heavy equipment, companies would be remiss not to take advantage of this info. Analyzing it allows firms to make more informed decisions, and an informed decision is a sound one.
Data-driven cost analysis is a necessary step in determining heavy equipment needs. Without it, companies could lose a considerable amount of money through poor decision-making. The advantages are too significant to ignore.
Holly Welles is a construction industry writer with work published in Construction Executive, Modern Contractor Solutions and other web magazines. Learn more about her work via her website, The Estate Update, or connect via LinkedIn.
