Equipment costs:-

For construction firms, it is important to accurately estimate the equipment cost as part of the total cost of the construction project. Inaccurate estimation of construction equipment cost may adversely affect the profit margin of the firms especially engaged in projects with more involvement of different types of construction equipments. The total cost of a piece of construction equipment consists of two components namely ownership cost and operating cost. This is also referred as O&O cost of the construction equipment. The selection of a piece of equipment in a construction project depends on the total cost associated with that equipment. The details about equipment ownership cost and operating cost are presented below.

Ownership cost:-

Ownership cost is the total cost associated with the construction equipment for owning it irrespective of the equipment is employed or not in the project. The ownership cost consists of the following;

a) Initial cost, b) Salvage value, c) Interest cost or cost of capital investment, d) Taxes, e) Insurance cost, and f) Storage cost

a) Initial cost

Initial cost is the capital investment required to own the equipment. It includes purchase cost, sales tax, transportation cost (or freight charges) to bring the equipment to company's storage yard or construction site and cost of assembly and installation of the equipment. If the equipment is mounted on rubber tires (pneumatic tires), then the tire cost is deducted from the initial cost for calculating ownership cost. This is because the expected service life of pneumatic tires is less than that of the remaining of the equipment. Accordingly the rate of deprecation of tires is different from that of the equipment. Cost of tires is considered as a part of operating cost of the equipment. As the equipment is used in the project, there is depreciation in value of the equipment with time due to wear and tear and obsolescence. The total amount of depreciation for the construction equipment over the useful life is equal to the initial cost less the estimated salvage value. The details about different methods for calculation of depreciation of the asset are already presented in Module 3.

b) Salvage value

As already mentioned in Module 3, salvage value represents expected cash inflow that will be received by disposing of equipment at the end of its useful life. The estimation of expected salvage value of the equipment can be carried out by referring to the data obtained from past projects wherein same (or similar) equipment was used or information obtained from other relevant sources.