Attention to Daily Details Helps Control Operating Costs

Understand machine applications to better manage actual operating costs.

Construction Equipment - January 1, 2004

Mike Vorster
Contributing Editor

In October, we separated owning and operating costs to show how decision-making can be improved by managing each with the skill, care and attention that it deserves. We ended the year by looking into the cost of capital and depreciation as important and complex components of owning costs. You can review these columns on ConstructionEquipment.com.

We now want to address some of the tough issues associated with managing the operating cost side of the total cost equation.

Operating costs—the costs you incur once you turn the key and put the machine to work—include things such as fuel, tires or tracks, ground-engaging tools, preventive maintenance, and repair parts and labor. Sound decisions must be made on a day-to-day basis if operating costs are to be kept in line.

One myth to put to rest is that high or increasing operating costs are entirely due to the age of the machine. True, older machines will break down more often and be more expensive. But how much of this increase in cost is due to age and how much is due to abuse, poor maintenance, and repairs that have not been as thorough as they could have been? Age is too often and too easily blamed for high operating costs. We need to look further.

Most equipment managers break total operating costs into five major categories and develop budgets by unit, group or fleet for each category. Estimating and controlling operating costs is a complex operation that relies heavily on cost and machine history data. But the data is of little value for accurate decision-making without considering application and operation, and without breaking it down into at least the following main categories.

1. Fuel

Fuel clearly comes first. It is surprising how many companies do not record the actual cost of fuel for individual machines despite the amount of money involved and the potential for loss. Others reconcile total fuel purchased on a job-by-job basis and allocate fuel cost to machines using a standard consumption formula, regardless of the fact that consumption will vary with different applications and operating conditions.

Companies that do collect accurate fuel usage data know that this reduces losses and provides an undeniable double check on the hours worked by the machine.

Many success stories about cost savings arising from extended oil drainage intervals and improved preventive maintenance rely on good fuel consumption data. Increases in fuel costs and more efficient data-collection systems based on bar code and RFID technology will make accurate data collection in this important area more cost effective and accurate.

2. Wear parts and tires/tracks

The proper management of wear parts and tires or tracks directly affect operating cost. The cost of wear parts such as cutting edges, ripper tips and the like is dependent on the application. Bucket teeth last longer in the Midwest than they do in the mountain states; tracks last longer in Iowa than in Florida.

The effect of harsh application is more apparent on components such as ripper tips, cutting edges and buckets that are close to the work than it is on components such as turbochargers and hydraulic pumps that are insulated by being far up the power train. A harsh operating environment affects booms, sticks, frames and other structural components but failures in these areas are, in most cases, a sign of over-application.

Operating costs will be high when a harsh application increases wear, but managers must differentiate this from over-application. When harsh application turns to over-application, managers will start experiencing cracking or failure in structural components.

Management of tires or undercarriages is a different story. Cost depends on application, but good operators and careful day-to-day field management can result in substantial savings. For example, time spent ensuring that tire pressures are correct or maintaining proper track tension pays high dividends.

3. Preventive maintenance

Preventive maintenance is an investment rather than a cost. Preventive maintenance personnel are the equipment manager's eyes and ears in the field, and the success of their operation is simply not negotiable. Systems must be in place to ensure that preventive maintenance is done to the required quality standards on time, every time. Preventive maintenance technicians and good operators form the first line of defense in the war against operating costs.

4. Repairs

The first categories—fuel, wear parts, tires or undercarriage and preventive maintenance—share a common characteristic: They do not, by and large, increase with machine age. This is not true for repair parts and labor. Here, the increase in cost as the machine ages is the single most important factor in determining how long to keep the machine.

It is not uncommon to see a situation where the amount of money spent in the 4,000-hour period from 8,000 to 12,000 hours exceeds the entire expenditure for the first 8,000 hours. Believing that expenditure in this category can be managed by averaging costs over the life of the machine is a dangerous thing to do. Managers must focus on the rate at which repair and maintenance costs increase with age. This will give them important information regarding the economic life of a machine and will ensure that good money is not thrown after bad in an ongoing and ever more expensive attempt to keep the machine working.