ARBA MINCH UNIVERSITY

ARBA MINCH INSTITUTE OF TECHNOLOGY

FACULTY OF CIVIL ENGINEERING

CONSTRUCTION EQUIPMENT (CENG 5203)

CHAPTER-1: EQUIPMENT MANAGEMENT

EQUIPMENT MANAGEMENT

1. Introduction
❑ Today contractors undertake many types of construction
activities that require different types, sizes, and groupings
of equipment for earth moving, excavating, and lifting.
❑ There is a piece of equipment for practically any work activity,
large or small.
❑ Materials, Money, Manpower and Machineries (the 4 M's)
are usual resources recognized in most situations.
❑ The dependency and need for heavy construction
equipment have grown with the size and complexity of
construction projects.
❑ The development of automated heavy construction
equipment for earthmoving, excavating, and lifting
occurred in the last two centuries.
 Level of
equipment
use by type
of
construction
 EQUIPMENT MANAGEMENT
❑ The efficient and effective implementation of
construction projects requires good management of
relationships for and among resources, activities and
stakeholders as applied to the context where such projects are
implemented.
❑ Equipment types used in a construction project is largely
dependent on their :
▪ Direct input to unit prices or not
▪ Type of work or trades
▪ Scope of work
▪ Mobility
▪ System of control and
▪ Availability
❖ Classification of Construction Equipments
❑ Generally, equipment types can be classified into Productive and Support
equipment.
I. Productive equipments are those units that alone or in
combination lead to an end product which can be recognized as a unit for
payment;
▪ Include pavers, haulers, loaders, rollers etc.
II. Support equipments are those equipments which are required for
operations related to the placement of construction such as movement of
personnel and materials, and activities that influence the placement of
environment.
▪ Include represented hoists, lighting sets, vibrators, scaffolds as typical support
equipments
❖Classification of Construction Equipments
❑ Another way of classifying construction equipments can also
be based on whether the construction is a heavy or light
construction works or services.
I. Heavy: Road and Hydro Power works, Large Irrigation
schemes, Water Supply and Sewage plants and High-Rise
buildings and often called equipment intensive.
II. Light: Low rise buildings, water supply and sewerage lines,
electric and telecommunication lines and small irrigation
schemes and called labor intensive services.
❖Classification of Construction Equipments
❑ For the purpose of this course two major
classifications of equipments largely based on the type
of works involved are covered.
I. Construction Equipments
▪ Earth works equipments: Bulldozers, Shovels,
Clamshells and Draglines, Loaders, Graders,
Scrappers, Rollers, Drills, Grouting pumps, Pile
driving and Hammers.
▪ Hauling and Hoisting equipments: Tractors,
Normal and Dump trucks, Scrapers, Hoists,
Conveyors and Cranes.
▪ Compaction and stabilization equipments-
Compactors
▪ Foundation Equipments - Pile Driving Equipments
▪ Pumping Equipments - Pumps, Hoses, Pipes, and
Compressors.
▪ Concreting equipment: Mixers, Vibrators
▪ Tunnelling equipment
▪ Drilling and blasting equipment
II. Construction Plants
▪ Aggregate production
plants:
▪ Crushers, Screens, Conveyors,
and Feeders.
▪ Asphalt mixing plant:
▪ Aggregate Batchers,
Bitumen Emulsifier, and
Mixers.
▪ Concrete Batching Plants:
▪ Feeders, Mixers and Silos.
 1. EQUIPMENT MANAGEMENT IN
CONSTRUCTION PROJECTS

1.1. General
• The cost of equipment in a project varies from
10 to 30% of the total cost of the project,
depending upon the extent of
mechanization.
• In modern fully mechanized projects, the cost
of equipment goes up to 30%.
• Proper planning, selection, procurement,
installation, operation, maintenance and
equipment replacement policy plays an
important role in equipment management for
the successful completion of the project.
• Equipment manager’s main task is to
reduce downtime, achieve optimum
equipment utilization and increase
production at minimum cost.
1.1. General
❑ Equipment engineer should coordinate with various wings of the organization
in discharging his job of:

▪ Equipment planning,
▪ Balancing,
▪ Selection of equipment and its utilization,
▪ Personnel selection and training,
▪ Financial planning,
▪ Preventive maintenance and
▪ General supervision.
❑ Thus equipment management integrates and continuously interacts with
human, technical, financial and production system in order to achieve top
efficiency and cost effectiveness.
1.2 EQUIPMENT PLANNING
❑ Modern construction projects are complex in nature and success of a
project depends greatly on proper and scientific planning.
❑ Before starting every project, its planning is done with great care, as the
efficiency of the whole project largely depends upon its planning.
❑ While planning a project we must very carefully decide about the extent of
use of construction equipment.
1.3 EXTENT OF MECHANIZATION
❑ Extent to which mechanization in a project should be planned
depends upon the following main factors:
1. Manpower: Type of manpower required by the project for its
execution, is first decided and whether this type of manual labor is cheaply and
sufficiently available round the year.
1.3 EXTENT OF MECHANIZATION
2. Completion period: Completion period plays a deciding role about the
extent of mechanization, since less the completion period more the
mechanization.
3. Nature of work: Nature of work includes adverse weather, climatic
conditions, topography, toughness, handling of large quantities of
construction material for long distance.
4. Availability of money: Since cost of equipment is too high and to be
spent initially, it needs heavy investment in the beginning. Therefore,
availability of money is a main factor in deciding the extent of
mechanization.
5. Availability of Indigenous Equipment: After sales service, repair
facilities are also considered where equipment manufactured in our own
country are not available.
1.3 EXTENT OF MECHANIZATION
6. Social objects of the project: Sometimes projects are sanctioned with the
object of providing employment opportunities, to improve the economic
condition of the masses in addition to the development in the area.
7. Labor Relations: In certain areas, past experience indicates labor unrests,
strikes, absenteeism, uncertainty, unavailability of labor or seasonal
fluctuations. In such circumstances machines are preferred being more
reliable to complete the project in time.
8. Overseas Projects: It is difficult and expensive to send large number of
man-power required in adopting the manual means in these projects,
therefore only alternative left is to execute the project using construction
equipments only.
9. Quality and Performance: The work carried out by means of
construction equipments is of high standard of quality and
performance. The quality is consistent, execution is fast, and work is more
durable.
10. Development of Industries: In countries like Ethiopia where industries
are in developing stage, it is the need of time to use construction
equipments for the development of manufacturing industry and faster
industrialization of the country.
 Points in favor of Machines Points in favor of Manual labor
1. It can handle tough works 1. Initial heavy investments are
which cannot be performed by not required to be made.
manual labor.
2. Valuable foreign exchange is
2. It is cheaper when quantum of saved by employing exchange is
saved by employing manual labor
work is more, and material is instead of using machines which
required to be transported for are to be imported.
long distances.
3. Small and short duration
1.4 USE OF MACHINES Vs USE projects are sometimes found to
3. Machines when used in the be economical with manual labor.
OF MANUAL LABOUR project, it delivers better
• The advantages & disadvantages quality of work.
of using machines and manual 4. Direct advantage to considerably
labor in construction projects are 4. It is possible to adhere to large number of people by way
briefly described hereunder: of employment which help in
schedules. social and economic
betterment.
5. No problem due to delay in
5. It is easy to predict the procurement of spares for the
behavior of a machine as repair of machines. The delay
compared to that of man, hence (lead time) is substantially high
planning is easy. in case of imported equipments.
 Points in favor of Machines Points in favor of Manual labor
6. Being lesser number of persons, (operators 6. Project can be started immediately, which
only), it is easy to supervise and control. is not possible in case machines are used.
7. It helps in development of technical Since importation, shipment, transportation
knowhow, skill and industrial development of installation and commissioning of
the country. equipments require a substantial time.
8. Availability of Manpower and seasonal 7. Disposal of equipment and its balance spare
fluctuations will not affect the project’s parts poses a problem after the project is
progress. completed.
9. Effect of climate and topographic
conditions is less when machines are used as
compared to that when manual labour is used.
10. No problem for housing and transportation of
persons and also for the arrangement for
supply of food, water, light and medicines etc.
1.5 FORECASTING EQUIPMENT REQUIREMENT
❑ Following are the main points planner has to decide in equipment
planning.
1. Working Shifts: By increasing the number of shifts we can reduce the number
of equipment required, as the same equipment can be used in second and third
shift.
2. Number and Size of Equipments: For deciding the number and size of the
equipments following factors should be considered.
▪ Quantum of work,
▪ Working days available for completion of project.
▪ Number of shifts planned.
3. Matching Units: The number and size of the matching equipments
should be planned for each activity, keeping in view that complete matching
set must be utilized at the maximum and combination must be optimum.
1.5 FORECASTING EQUIPMENT REQUIREMENT
4. Procurement Scheduling: Procurement scheduling is done considering
procurement time required and time when equipment is required.
5. Workshop and Stores Planning: While planning for the purchase of
equipments, it is necessary to plan for the workshop and stores for carrying
out the repair and maintenance.
6. Manpower planning: Planning for manpower in order to operate the
equipment and to carry out the repair and maintenance is also necessarily be
done sufficiently in advance.
7. Site Conditions: The type of equipment selected mainly depends upon soil
available, and valley conditions, surface and strata where work is to be carried
out.
1.6 SCIENTIFIC PLANNING
❑ Modern construction projects are complex in nature and success of a
project depends greatly on proper and scientific planning.
❑ This means that the data or basis taken should be based on past
experiences gained in various projects and on work studies carried out in
various conditions at various places.
❑ While planning a project we must very carefully decide about the extent
of use of construction equipments.
1. Quantum of work
❑ The first stage of planning is to calculate the total quantity of work
involved in each operation.
❑ For correct planning it is very much essential to ascertain quantity of work as
accurate as possible.
 1.6 SCIENTIFIC PLANNING
1. Quantum of work
❑ While calculating the quantity of work involved it is necessary to take a
note of various constraints, for example,
A. limitation of working space, which may affect the efficiency of the
machine, so as to assess the output rate of equipment to be used,
B. location of quarries and amount of material available in each of them.
2. Output and Capacity of Equipment
❑ Next phase of planning is to decide the equipment on the basis of its output
and capability.
❑ The equipment must be capable to handle the work efficiently on which it is
to be engaged.
 1.6 SCIENTIFIC PLANNING
2. Output and Capacity of Equipment
❑ Output of the equipment varies with various conditions. Following are
some of them:
▪ Different type of soil needs different amount of effort.
▪ Reduction of horsepower of engine due to altitude.
▪ Time spent on servicing and inspectionvaries with the working
conditions.
▪ Output of the equipment also depends upon the operator’s efficiency.
▪ Output of dumper etc. depends on the condition of haul road.
▪ Time spent on the unproductive works.
▪ Changing weather conditions are responsible for variation in output.
▪ Capacities of the matching machineries working in the same group.
 1.6 SCIENTIFIC PLANNING
3. Utilization and Time-period
❑ It is always a good practice to utilize equipment to the limit of its useful life
on one project.
❑ For a project of nearly 4 years or more duration, it is possible to use the

equipment to its full economic life.

❑ Experience has shown that a yearly utilization for as equipment under average
working condition in most case is as follows:
▪ Single shift operation – 1500 hrs.
▪ Double shift operation – 2500 hrs.
▪ Triple shift operation – 3200 hrs.
❑ Two shift operation of equipment is economical and should be employed
whenever possible.
❑ Three shift working results in frequent breakdowns and low availability,
which means more standbys and increase in cost.
 1.6 SCIENTIFIC PLANNING
4. Equipment Operation Planning
❑ Following are the main points which should be considered while planning
for equipment operation:
▪ Equipments must work in coordination, especially when they are required
to work in a team.
▪ Proper working and the maintenance of auxiliary equipments should also be
ensured.
▪ Poor maintenance of service roads may result in more cycle time of trucks,
dumpers etc. besides causing more downtime.
▪ In order to ensure proper operating of equipment and to eliminate delays it
is necessary to ensure scheduled maintenance in addition to watch the working
by the operator.
▪ Safety on the work is a must.
▪ Good workmen should be given proper incentives.
 1.6 SCIENTIFIC PLANNING
5. Manpower Planning
❑ To achieve maximum production at lower cost and at desired quality, right man at
right place at right job and at right time must be put.
❑ This is what is called scientific assessment of manpower planning.
❑ Following are the essential requirements for a sound manpower planning:

▪ It should be done sufficiently in advance.

▪ It should be reviewed periodically, so that modifications or
alternations if any can be incorporated.
▪ The planning should have top management support.
▪ It should be need based.
▪ It should be economic in nature.
▪ It should incorporate the elements of flexibility and elasticity.
▪ It should provide a suitable policy
 1.6 SCIENTIFIC PLANNING
5. Manpower Planning
❑ For an effective and efficient manpower planning following main factors
should be considered:
▪ Working Hours: Manpower requirement is directly related to the total
hours worked per day by the employee in a project.
▪ Number of shifts: It has been experienced that production falls in the
night shifts as compared with day shifts.
▪ Nature of work: Nature of work decides the output and capabilities hence
plays and important role in deciding manpower requirement.
▪ Operators Efficiency: Normally following standard is considered as
guidelines for measuring workers efficiency:
o Operators having one year of job experience = 85%
o Newly appointed operators after training = 60%
1.7 SELECTION OF EQUIPMENT
❑ Proper selection of equipment for a construction project is of vital importance
for its speedy and economical completion.
❑ For proper selection of equipment, a considerable experience in the operation and
maintenance in the field is essential.
❑ Following are the main points which should be considered in the process of
equipment selection.
A. Suitability for Job Conditions: The equipment must meet
the requirement of the work, climate and working conditions.
B. Size of the Equipment: Size of equipment should be such that it must be
able to be used with other matching units.
C. Standardization: It is better to have same type and size of
equipments in the project.
1.7 SELECTION OF EQUIPMENT
D. Availability of Equipment in the market: The equipment which is easily
available in the market should be purchased.
E. Availability of Spare Parts: While selecting a particular type or make of
equipment, it should be ensured that the spare parts will be available at reasonable
price throughout the working life of the equipment.
F. Multipurpose Equipments (Versatility): There are certain types of
equipments which are not utilized fully.
G. Availability of Know-how: The equipment selected should be
satisfactorily handled by available operators and mechanics.
H. Use in Future projects: When equipment completes only a part of their
useful life in a project, it should be kept in view that the equipment can
be used in future projects and may not become obsolete.
1.7 SELECTION OF EQUIPMENT
I. The Economical Aspects: While selecting the equipment, it should be
considered that the cost of unit production should be minimum.
J. Reliability of the Equipment: Equipment selected for the project must
be reliable one.
K. Service Support: Service support should be available in the area of project
where the equipment shall be used. Service after sales is a major criteria for
selection of equipment.
L. Operating Requirements: The equipment selected should be easy to
operate and maintain, acceptable to the operator and should have lesser fuel
consumption.
M. Past performance: If the equipment being purchased is of new make
and model, it is desirable to enquire about its performance from other
users, who are using this make and model.
1.7 SELECTION OF EQUIPMENT
N. Reputation of the manufacturer.

O. Warranty or guarantee offered by the manufacturer.

P. Use of standard components in the equipment.

Q. Adequacy of drive mechanism or power of the prime-mover.

R. Versatility of the equipment should be given due priority: This means a

machine which can be used for many jobs.
1.8 FORWARD PLANNING
❑ The planning of a project should be made at least 6 to 9 months in advance
of commencement of work.
❑ This time lead is essential for the following main tasks to be
performed before the commencement of project:
A. Purchase of Equipment: This includes the formalities for calling
enquiries from manufacturers, selecting an equipment; time taken by the
supplier for supply of the equipment and transporting it to the project site,
installation and commissioning it.
B. Workshop Installation: A well equipped workshop should be installed
in the project, so as to fulfill the requirement of repair of equipment.
C. Spare Parts Stock: Initial lot of spares should be purchased along with the
equipment.
D. Posting of Personnel: Selection of the right operator.
1.9 PURCHASE OF EQUIPMENT
❑ Once the selection of the equipment is done the purchase order for the selected
model and type is issued considering lead time for the supply of equipment,
time required for its installation and commissioning, and the time when
equipment should be available for use.
❑ The process of selection of equipment is generally a part of
procurement, followed by equipment planning and helps in purchase of
equipment.
❑ The complete procurement action is divided in various activities like calling
enquiries, its technical and financial evaluation, ordering, contract-
making, transporting, assembling and installation and
commissioning.
1.9 PURCHASE OF EQUIPMENT
1. Purchasing v/s Hiring
❑ Contractors and other users of construction equipment are required to take a
decision as to whether to purchase an equipment or to acquire it on hire.
❑ Following are the points which are in favor of purchasing an
equipment:
▪ When the equipment used for most of the construction period and likely
to complete almost its full life, while working in the project.
▪ It remains available for use whenever it is needed.
▪ Purchased equipment means an own equipment, is generally kept in
better mechanical condition and is more reliable. This means
matching equipments will not be affected adversely due to frequent
breakdowns.
1.9 PURCHASE OF EQUIPMENT
1. Purchasing v/s Hiring
❑ Following are the points which are against owning the equipment:
▪ When the equipment cannot be used for its full life, then the owning
may be more expensive than hiring.
▪ The purchaser is required to do huge investment initially, which
otherwise he may need for other purposes.
▪ Contractor may have to face the danger of obsolescence of the equipment.
2. Hiring with an option to purchase
❑ In this system user hire theequipment at the prevailing rate with a provision
that he may purchase it later if he wishes to do so.
1.10 WORKSHOP INSTALLATION
❑ A workshop should be installed in the project so as to enable to carry out
necessary repair and maintenance of the equipment. Workshop should cater
for the following facilities:
▪ Servicing, which includes cleaning, cooling, lubrication, and check- ups.
▪ Field repairs.
▪ To carry out inspection at regular specified intervals to detect faults
which can be rectified in time to avoid breakdowns. It detects the
defects in operation, change in adjustments, wear and tear, cracks or any
other indication for likely breakdown in near future.
▪ Tire repair.
1.11 SPARE PARTS MANAGEMENT
❑ Machines worth millions of Birr are idle for want of spares, on other hand huge
stock of spares are lying which perhaps may not be used.
❑ This emphasizes the need of paying more attention on the management of spares.

❑ Improvement in the capacity utilization and cost reduction can be achieved

by better spare parts management.

❑ The objective of spare parts management is to provide right parts in right
quantity, in right place, at right time and at right cost.
❑ The parts must be properly codified and classified.
1.12 MAINTENANCE MANAGEMENT
❑ Every machine is thoroughly tested and inspected by the
manufacturers before selling.
❑ When used it is subjected to wear and tear, hence proper attention should
be given to protect the machine and its components from undue wear and thus
protect them from failures.
❑ A proper attention means lubrication, cleaning, timely inspection and
systematic maintenance.
❑ Maintenance means efforts directed towards the up keep and the repair of that
machine.
1.12 MAINTENANCE MANAGEMENT
❑ Following are the types of maintenances:
A. Repair Maintenance can be followed for non-critical equipments, and
where failures are unpredicted.
B. Corrective Maintenance should be adopted for frequently falling
components.
C. Preventive Maintenance (planned or scheduled or systematic
maintenance). Periodic inspection or checking at the pre-decided
frequency helps to find out the reasons leading to breakdown and to
rectify them when they are in minor (or initial) stages.
1.12 MAINTENANCE MANAGEMENT
1. Functions of Preventive Maintenance
❑ Following are some of the important functions of the preventive maintenance
programme:
A. Inspection or checkups at carefully decided frequencies.
B. Lubrication. Mechanical components like gears, bearings, bushes and other
friction surfaces give good performance for long periods
C. Every preventive maintenance work should be preplanned.
D. Good record keeping is essential for good preventive maintenance.
E. Training of maintenance personnel.
F. Storage of maintenance spares.
1.12 MAINTENANCE MANAGEMENT
1. Functions of Preventive Maintenance
❑ Advantages of Preventive Maintenance

A. Less overtime work required as it is pre-planned.

B. Less repair costs
C. Less Production downtime.
D. Less stand-by equipments needed.
E. Increased life expectancy.
F. Better spare parts control leading to reduced inventory.
G. More reliability.
1.12 MAINTENANCE MANAGEMENT
2. Tyre Maintenance
❑ Correct tyre selection and proper tyre maintenance are therefore very essential
for ensuring economic operation.
❑ For proper maintenance of tyres following factors should be considered:

▪ Proper inflation.
▪ Proper Loading.
▪ Proper Speed.
▪ Keeping the tyre up to desired temperature.
▪ Proper driving habit.
▪ Avoiding vehicles’ mechanical irregularities.
▪ Storing of tyres properly.
▪ Tyre rotation and Retreading at right time.
1.13 DOWN-TIME AND AVAILABILITY
❑ The downtime is the duration from the time when equipment goes under
breakdown to the time when it is restored to service.
❑ Down time can be reduced by following ways:
▪ Speedy Fault Detection. Fault should be detected before it becomes
serious enough to affect performance.
▪ Speedy Fault Diagnosis. The time spent in fault diagnosis can be
reduced by following a logical method of fault diagnosis.
▪ Speedy repairs. Time for repairs include time required for fault
detection and diagnosis, removal of assembly, stripping, adjustments,
assembly and then final trial test.
▪ Reduction in Waiting Time. Waiting time for repair is considerably higher
than actual time taken for repairs due to the irregular (random) arrival of
repair jobs.
1.14 OPERATION AND UTILISATION
❑ Since this is the task directly responsible for production, maximum managerial
care should be given to the ‘operation’.
❑ Following are the main factors which effect the operation:
i. Availability of Trained Personnel.
ii. Adequate repair and maintenance facilities in the projects.
iii. Availability of spares required for repair and maintenance.
iv. Working Conditions.
v. Haul roads should be well maintained
vi. Information Monitoring System
vii. Feedback should be extended to the manufacturers
[Link] output of each equipment should be compared with that of pre-
determined norms.
ix. Encourage operators and maintenance personnel for giving long life of
the equipment.
1.15 MANAGEMENT TECHNIQUES
A. Network Techniques. Network techniques can be used to prepare
equipment schedules, organizing and executing the work of
assembling, installation and commissioning of plants, to organize and execute
major repair job of equipment.
B. Work Study. Work study is performed to determine:
i. A best way of doing a work so as to get maximum output without
affecting the equipment adversely.
ii. How much time a unit of work should take to perform or how much work
per hour should be performed by the equipment?
C. Operation Research Techniques. Operation research is a method of
analysis by which management receives aid for their decision. It offers
alternative plans for a problem for decision by adopting analytical
methods.
1.15 MANAGEMENT TECHNIQUES
C. Operation Research Techniques.
❑ The methods of operation research which can be applied to equipment
management are:
i. Waiting line models,
ii. equipment replacement models,
iii. simulation and
iv. transportation model.
D. Communication. Communication means transmission of ideas,
information, directions etc. The communication is a continuous process
and must move freely in both directions and can be either oral or written,
and flows either in upward or downward or horizontal directions.
1.15 MANAGEMENT TECHNIQUES
E. Computerization in Equipment management. Computers are used
effectively for various aspects related to the equipment management
like, availability of equipment, resource leveling, maintenance of history
cards and then using them for planning the over hauling of
assemblies/equipment as a whole.
F. Value Engineering. Value engineering is a tool of management to determine
the approaches for saving the cost from the point of ‘value.’
▪ The job of value engineers is to make a study of the design,
specifications, materials and methods of construction of the project at
a lesser cost without reducing the equality and usefulness of project.
1.16 REDUCTION OF CONSTRUCTION COST
❑ A cost reduction in construction can be achieved by adopting following ways:
i. Proper planning
ii. Timely supply of funds, equipment, materials, and personnel.
iii. Proper equipment planning and selection.
iv. Proper equipment operation, maintenance and utilization.
v. Adopting proper inventory control.
vi. Engaging experienced operators
vii. Monitoring progress and adopting scientific methods.
viii. Ensuring continuous supervision.
ix. Adopting innovations and latest techniques suitable for the job
x. Eliminate unnecessary construction requirements.
xi. Use local materials when they are satisfactory.
xii. By applying value Engineering.
1.17 DECISION-MAKING
❑ Decision-making is the most important task in equipment management, and we
can say that good decision-making ability is the key to success.
❑ Efficiency, loss or profit, and working atmosphere of a construction firm are
affected by these decisions.
❑ Management without decisions is like a man without backbone.
❑ The days of hit and mis methods in management are over and have been
replaced by new concepts and scientific techniques.
❑ In general, decisions are the output of the following inputs:
i. Knowledge and information,
ii. Ability and skill: Communications, analytical, or conceptual.
iii. Value system: Opinions, attitudes, habits, or belief
1.17 DECISION-MAKING
❑ The job of equipment management involves a large number of decisions e.g.
a) Which equipment should be used?
b) What work is to be done by equipment?
c) Whether to use equipment or to do it manually?
d) What make and model of the equipment is to be purchased?
e) Which of the matching equipment and of what size and in what number
to be deployed?
f) Which of the accessories to be purchased with the equipment?
g) Whether to purchase the equipment or take on hire.
h) When to purchase from own capital or take loan.
i) Whether to purchase a particular spare for store or purchase when needed.
1.17 DECISION-MAKING
❖ Characteristics of a Good Decision:
a) It is the choice of the best course among various alternatives.
b) It is the end process preceded by the deliberations and reasoning
c) It is associated with commitment.
d) It is rational.
e) Evaluation process exists in every course of decision making.
❖ Procedure for Decision-Making:
a) Recognizing and analyzing the problems.
b) Finding relevant facts.
c) Determining possible alternatives.
d) Evaluating the impact of alternatives.
e) Selecting the best solution.
f) Implementation of the decision.
2. ECONOMICS OF
CONSTRUCTION
EQUIPMENT
• GENERAL
• Principles and techniques of engineering
economics are utilized while making
equipment selection and planning of
finances for the purchase of construction
equipment.
• Economics of construction equipment deals
with the study of working of the
equipment and to compute the unit
costs of production.
• Unit cost of production is calculated after
estimating the best of production by
calculating hourly ownership and
operating cost of the equipment and
knowing hourly production of that
equipment.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT

1. OWNING COSTS
1. Investment Costs
❑ This is a kind of fixed cost and continues to be incurred whether the equipment
is used or not. Investment costs comprises of the following;
▪ Interest on the money invested in the procurement of the equipment
▪ Various taxes on the equipment.
▪ Insurance expenses.
▪ Storage costs.
❑ If the money spent on the purchase of the equipment, was invested in the
bank or similar other agencies, it would have earned an interest. Now
this amount, equivalent to the interest, should be recovered from this
equipment.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT

1. OWNING COSTS
1. Investment Costs
❑ Generally, these investment costs are taken as about 10 to 15% of the total cost
of the equipment. This total cost comprises of the following:
a) F.O.B. Price of the equipment with all attachments and accessories.
b) Insurance and freight charges.
c) Expenses on un-loading, clearance and custom duty.
d) Cost of transportation to the job site including loading and unloading.
e) Erection and commissioning charges.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2. Depreciation
❑ Due to use and obsolescence every equipment loses its value. This loss is
accounted for by depreciating the equipment every year.
❑ Depreciation. Whenever any machine or equipment performs useful work its
wear and tear is bound to occur. This can be minimized up to some extent by
proper care and maintenance but can’t be totally prevented.
❑ Obsolescence. is the depreciation of existing machinery or asset due to new
and better invention, design of equipment of processes etc.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT

1. OWNING COSTS
2. Depreciation
❑ depreciation can be classified as under:
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2. Depreciation
❑ Methods of Calculation: The following are the methods for calculating
depreciation.
i. Straight line Methods
ii. Diminishing Balance Method
iii. Sinking fund Method
iv. Annuity Charging method
v. The Insurance policy method
vi. The Revaluation or Regular Valuation method
[Link] Hour Basis method
viii. The sum of the year’s Digits method
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Straight Line Method
❑ This method assumes that the loss of value of machine is directly proportional
to its age. It means one should deduct the scrap value from the original value
and divide the remaining value by the number of years of useful life.

C be the Initial cost of a machine.

Let
S be the scrap value.
N be the Number of years of life of machine. and
D be the depreciation amount per year.

C−S
Then, D= Birr
N
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Straight Line Method
Example-1
(a) A machine was purchased for Birr 450,000 on 1st January, 1991, the erection
and installation work costs Birr 70,000. This was replaced by a new one on 31st
Dec, 2010. If the Scrap Value was estimated as Birr 150,000 what should be the
rate of depreciation and depreciation fund on 15th June, 2000?
(b) If after 12 years of running, some assemblies are replaced and the replacement
cost is Birr 150,000 what will be the new rate of depreciation?
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Straight Line Method
Solution
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Straight Line Method
Solution
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Straight Line Method
Solution
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Straight Line Method
Example-2
Consider an excavator purchased for 3.1 million birr having a useful life of 5 yrs.
Determine the depreciation and book value for each of the 5 years using Straight
Line method. Assume a salvage value of S = 860,000 birr.
Solution
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Straight Line Method
Solution
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Diminishing Balance Method
❑ This is also called “Reducing Balance” Method. The diminishing value of
machine is greater in the early years. It depreciates rapidly in the early and later-
on slowly.
❑ So under this method, the book value of the machine goes on decreasing as
its existence continues.
❑ In this, let x be the fixed percentage taken to calculate the yearly depreciation
on the book value.

Where, C = initial cost, S = Scrap Value, N=No. of the years of life.

❑ It will be more clear by the following solved example.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Diminishing Balance Method
Example - 3
A lathe is purchased for Birr 800,000 and the assumed life is 10 years and scrap
value Birr 200,000. If the depreciation is charged by diminishing Balance
method, calculate the percentage by which value of the lathe is reduced every year
and depreciation fund after 2 years.
Solution
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Diminishing Balance Method
Solution
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Diminishing Balance Method
Solution
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
2.1.2 Depreciation Diminishing Balance Method
Solution
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
1. OWNING COSTS
3. Major Repair Cost
❑ While minor or field repairs are carried out during the day to day working of
the equipment the major repairs are carried out after the substantial use of the
equipment.
❑ Major repairs and overhauls are the replacement of major parts of the
equipment because of the excessive wear through a long period of use.
❑ Since these repairs require a heavy amount of expenditure, they are met from
the major repair fund.
❑ Usual practice is to consider this major repair cost as a percentage of straight line
depreciation cost and is generally taken as 80 to 200% of the cost of
depreciation depending on the type of equipments.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2. OPERATING COSTS
1. Cost of Fuel
❑ The actual consumption of fuel or electricity in these construction equipments
depends upon:
i. Engine B.H.P
ii. The load factor, which means the extent to which the engine will operate
at full power. Load factor generally vary from 30% to 70%.
iii. The conditions of the engine
❑ Optimum fuel consumption in liters per hour may be calculated using following
formula:
Fuel consumption = 0.27 x load factor.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2. OPERATING COSTS
1. Cost of Fuel
❑ Recommended value of load factor
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2. OPERATING COSTS
2. Cost of Lubricants
❑ Lubricants include the following:
▪ Engine oil
▪ Air filter oil
▪ Transmission oil
▪ Hydraulic oil
▪ Greases etc.
❑ The quantity of lubricating oil depends upon various factors. Some of these
factors are:
▪ Capacity of the crank case
▪ Condition of piston rings
▪ Number of hours between oil changes.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2. OPERATING COSTS
2. Cost of Lubricants Lubricating Oil
Consumed
❑ Requirement of lubricants including engine oil, air cleaner oil, transmission
oil, greases, and hydraulic oil, can be assessed because of information supplied
by the equipment manufacturer.
❑ Following formula is used for estimating the quantity of oil required per hour:
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2. OPERATING COSTS
3. Servicing and Maintenance Cost
❑ Regular servicing and maintenance of each equipment is very essential in
order to have the equipment in reliable and perfect condition of working. This
cost includes:
▪ Change of lubricants
▪ Checking and servicing of fuel and lubricating systems, including change of
filter elements.
▪ Care of tyres and tubes
▪ Care of Battery and electrical system
▪ Cleaning of the equipment and other similar works.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2. OPERATING COSTS
4. Labour Cost
❑ Labour cost is an important element of operating cost and contributing a
major part of it.
❑ Labour cost element includes the salaries of operators, and helpers engage on the
equipment.
❑ Provision for leave reserve (may vary from 10 to 12%) is also made under the
bead of labour cost.
❑ A percentage of the wages of supervisory staff, depending upon the attention
required on that particular equipment, is also to be added.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2. OPERATING COSTS
5. Cost of Field Repairs
❑ This is the cost incurred on minor repairs which are carried out on the site or in
field workshops.
❑ These repairs include replacement of minor parts, such as fan belts, filters,
bearings, wire ropes etc. and other adjustments required to be carried out during
normal working of the equipment.
2.2.6 Overheads
❑ These are the charges which are incurred on complete fleet of the equipment.

❑ These charges includes the pay on watchman, light and water charges in
the storage yards, uniform to the operating and maintenance staff etc.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
❖ Determination of Owning and Operation Costs
❑ To determine the cost of owning and operating following procedure is
adopted.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
Determination of Owning and Operation Costs
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
Determination of Owning and Operation Costs
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
EXAMPLE-1
❑ Determine the probable cost per hour of a CAT 928G Wheel Loader with 145 HP
capacity and with a delivered price of Birr 2.8 million. The following conditions
should be considered while establishing the hourly rental rate.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
EXAMPLE-1
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
EXAMPLE-1
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
EXAMPLE-1
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
EXAMPLE-1
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
EXAMPLE-1
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
EXAMPLE-1
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
EXAMPLE-1
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
EXAMPLE-1
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
EXAMPLE-1
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
4. STANDARD COSTING
❑ Standard Cost
❑ Standard cost is an estimated cost of a job or project prepared in
advance of execution.
❑ This is prepared considering normal cost of normal production with in normal
capacity and under normal conditions and efficiency.
❑ Standard Costing V/S Budgetary Control
A. Common principles
▪ Establishing predetermined standards, target or yardstick of performance.
▪ Measuring actual performance as compared to yardstick.
▪ Locating variances between actual and standard performances
▪ Disclosing reasons for such variances.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2.4 STANDARD COSTING
Standard Costing V/S Budgetary Control
B. Differences
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2.4 STANDARD COSTING
Essential Requirements for Standard Costing
❑ Standard cost of a work requires following:
▪ Technical specifications of quality, type and quantity of direct material for each
item.
▪ Estimated prices of all materials required, based on current prices and
anticipated changes during the period.
▪ Estimates of direct labour time for each category of labour
▪ Standard hourly rates of each category of direct labour.
▪ Estimate overhead recovery rate
❑ Uses of Standard Costs
▪ Assisting the management in better planning, coordination and control.
▪ Facilitates in comparing with actual costs.
▪ Provides basis for measuring the productivity improvement.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2.5 COST CONTROL AND COST REDUCTION
❑ Cost control is a method of comparing actual costs with
predetermined standards or targets.
❑ Whereas the cost-reduction is meant to take drastic actions,
sometimes by changing rigid boundaries laid down by the standards or targets.
Steps for Cost Control and Cost Reduction
❑ Following essential steps are required to be taken for effective cost control and
cost-reduction.
i. Inculcating an all-round cost consciousness in the organization.
ii. While setting standards and norms, scope of cost reduction is to be explored.
iii. Decide priorities for attack to achieve quick results.
iv. Control on consumption as well as on block-up of capital is to be exercised.
v. Provide right climate to encourage creativity.
vi. Reporting and monitoring system should be strengthened.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2.5 COST CONTROL AND COST REDUCTION
Cost saving Areas
A. Reduction in Material Cost
▪ Ensure purchase of right quantities of right quality at right time from
right source and at right price.
▪ Avoid overstocking or inventory build-up
▪ Planning material procurement in advance, scientifically
and from practical consideration.
▪ Decision regarding whether to purchase aggregate etc. or to
manufacture.
▪ Minimum handling of material be ensured.
▪ Utilize scrap and waste material.
▪ Avoid wastage of material.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2.5 COST CONTROL AND COST REDUCTION
Cost saving Areas
B. Reduction in Labour Cost
▪ Judicious and rational distribution of workmen
▪ Labour rate should be decided considering actual norms of output.
▪ Suitable inspection and supervision methods be introduced.
▪ Decision for single shift, double shift, triple shift, or extended shift (one
shift of 10 to 12 hrs) be taken, considering overall economy.
▪ Operators should be trained from time to time to make them well
conversant with the latest technology to enable to achieve maximum
productivity.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2.5 COST CONTROL AND COST REDUCTION
Cost saving Areas
C. Reduction in Overheads

▪ Overhead expenditure should be maintained in a proper record

and compared with estimates or standards from time to time.
▪ To keep control on indirect labour.
▪ To have versatile machines with different accessories to have optimum
utilization.
▪ Reduction in avoidable unproductive expenditure to the
maximum.
▪ Construction of colonies, office etc. be made by utilizing the local
material for economy and location be decided after careful
considerations.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
6. Cost- Accounting
❑ In the current days of competition, it is necessary that the concern should
have utmost efficiency and minimum possible wastage and losses.
Financial or Accounting Ratio Analysis
❑ Financial or accounting ratio may be defined as relating one
accounting figure to another to provide better comparison.
Different financial ratio are:
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2.6 Cost- Accounting
Financial or Accounting Ratio Analysis
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2.6 Cost- Accounting
Financial or Accounting Ratio Analysis
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
6. Cost- Accounting
Uses of Financial Ratio Analysis
❑ Financial rations provide useful indications to appraise financial health of
a concern and overall efficiency of the project.
❑ Computation of ratios often leads to a further enquiry into various aspects
of project, and which enables to bring out some important facts, which
ultimately helps in:
a) Planning: short, medium, and long range.
b) Diagnosis of financial ills or industrial sickness.
c) Decision marking of all types
d) Keeping a continuous watch on the financial trends and taking
corrective actions well in advance
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2.6 Cost- Accounting
Bidding by the Construction Agencies
❑ The value of the profit is decided after considering several factors, some of
them are:
▪ Competition in the market
▪ Size of the project.
▪ Facilities available like, mobilization advances, interval at which payments
will be made to the contractor.
▪ price escalation
▪ Risk involved
▪ Chances for utilizing the equipment after completion of the project.
▪ Availability of raw material from open market or on control and its lead time.
▪ Maintenance period after completion of the project.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
7. REPLACEMENT OF EQUIPMENTS
❑ The main reasons for the replacement of the equipment are:
A. Deterioration. It becomes necessary to replace the machine when it wears out
and does not function properly.
B. Obsolescence. Whenever new equipment comes in the market, which is
capable of producing more products of good quality with less labour and has
more efficiency, the existing machine is to be replaced with this machine
although it was functioning well.
C. Inadequacy. With the change of product design to meet the customers
demand or quantity to be manufactured, old machinery becomes inadequate
and, therefore, calls for different manufacturing equipment.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
7. REPLACEMENT OF EQUIPMENTS
Equipment Replacement Policy
❑ Equipment replacement decision plays an important role in the economic
running of any concern. A firm must face three types of replacement decisions.
i. The replacement of capital equipment, as it wears out.
ii. The capital equipment required for expansion.
iii. The replacement of old technology by the new (replacement
of obsolete equipment)
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
7. REPLACEMENT OF EQUIPMENTS
Equipment Replacement Policy
❑ Large numbers of factors are responsible to replace the equipment before
the expiry of the estimated life, namely:
▪ To reduce production cost.
▪ To reduce fatigue.
▪ To raise quality
▪ To increase output
▪ To secure greater convenience, safety and reliability.
2. ECONOMICS OF CONSTRUCTION EQUIPMENT
2.7 REPLACEMENT OF EQUIPMENTS
Guidelines in Replacement Analysis
❑ There are certain rules which may be used as guidelines for replacement analysis.

A. For equipment in use

Do consider:
▪ Operating cost
▪ Repairs and maintenance cost.
▪ Down time cost.
▪ Salvage value
▪ Rebuilding cost
Do not consider:
▪ Original cost.
▪ Money already spent on repairs and maintenance
▪ Unrealistic book value
2. ECONOMICS OF CONSTRUCTION EQUIPMENT

2.7 REPLACEMENT OF EQUIPMENTS

Guidelines in Replacement Analysis
B. For new equipment Do consider:
▪ Initial cost
▪ Interest on capital investment.
▪ Salvage value at the end of useful life
▪ Cost advantage of improved product
▪ Labour savings.
Do not consider:
▪ Any savings not clearly assessable.
▪ Overhead charges