From making new equipment purchases to reducing downtime and operational costs, a proper cost-of-ownership model needs to include all facets of one’s business in order to achieve the best financial foundation.
A proper cost-of-ownership model doesn’t have to be overly complicated, but having one in place is necessary for making smart operations decisions, especially when adding a new crawler or wheel excavator to an equipment lineup. From making new equipment purchases to reducing downtime and operational costs, a proper cost-of-ownership model needs to include all facets of one’s business in order to achieve the best financial foundation.
“One of the first considerations that will substantially influence your cost of ownership is picking a purchasing method that matches the time frame you expect to operate your excavator,” said Chad Ellis, Doosan product manager. “Unless an owner pays off the contract early, the payment is a controllable cost that is fixed and budgeted.”
Ellis added that heavy equipment owners can typically choose from four basic purchase options:
- Cash: ideal for owners that have the resources and seek instant ownership.
- Loan: appeals to small- and mid-sized companies that need to preserve capital. Advantages include seasonal flexibility. Disadvantages include highest monthly cost.
- Rent-to-Purchase: allows owners to test out a piece of equipment before buying, and build equity in a machine before adding it to their fleet. Owners only pay while they use the equipment, so this option is ideal for unexpected projects.
- Lease-to-Purchase: provides the lowest repayment plan and offers owners an end-of-term buyout opportunity to return the machine at the end of the lease agreement. Can include bundled maintenance or warranty for the length of the lease contract. Offers seasonal payment term flexibility.
Financial experts have been noticing a fundamental shift in consumer perception toward the benefits of leasing. According to the U.S. Small Business Administration, 85 percent of all companies lease equipment.
“Most of those enterprises indicate that leasing is their average-to-best means for financing equipment purchases,” Ellis said.
Maintaining Fleet Productivity
After deciding on a finance option, owners should then analyze a range of operational costs and then determine an appropriate level of insurance coverage and operator training.
“Through proper use of an excavator, operators can reduce wear and tear and trim fuel consumption, which is typically an excavator’s biggest input,” Ellis said.
With fluctuating diesel prices, fuel efficiency is becoming one of the most important factors in a cost-of-ownership calculation. Ellis said to project fuel costs, multiply gallons per hour by the cost per gallon. Multiply that per-hour cost by the total number of hours you plan to operate the machine.
“Although this estimate will provide a fairly accurate idea of consumption, it’s important with fuel usage to recognize that various applications can have considerably different consumption rates.”
Along with fuel estimates, operators should consider the replacement rate and potential wear of the work group, such as bushings, pins and wear plates; and the ground engaging tools, like bucket teeth and cutting edges.
“If an excavator is a dedicated specialty attachment machine, the contractor should work with the dealer or attachment manufacturer to calculate tooling replacement cost,” Ellis said.
Strong Dealer Relationship
Working with a trusted dealer for maintenance, repairs and regular service intervals will keep your crawler or wheel excavator running like-new for thousands of operating hours. And along with dealer support, listening to your machine is key to tackling a potential issue before something goes wrong.
“There are technological advances that are helping owners control costs. Global positioning systems, commonly known as telematics, are becoming standard on excavators with the potential to have a huge impact on service initiatives,” Ellis said. “These systems not only alert operators to required maintenance, but they can link dealerships to machines in the field to monitor diagnostics and service internal alerts.”
Service on major components may need to be incorporated into the cost-of-ownership equation if an owner plans to exceed more than 10,000 operating hours on a machine.
“At this usage level, factors may need to be included such as building or resealing pumps, cylinders, swing and travel motors, and engines,” Ellis said.
Compiling an accurate cost of ownership analysis is one of the most critical steps an owner can take to ensure an excavator is the most profitable investment possible. Any cost reductions or operating efficiencies that are identified early will improve the bottom line over the entire life of the investment.