COST OF OWNERSHIP AND OPERATION

Specific Objectives

Students can calculate the cost of owning heavy equipment.

Students can calculate the operational costs of heavy equipment.

Reading Material

Heavy Equipment
Polytechnic, Bandung.
Directorate of Road Development, 1983, “Guidelines for Project Cost Analysis of Construction

Padalarang–Ciliunyi–Jakarta Road, Directorate General of Highways

Department of Public Works.
Nabar Darmansyah, Drs, 1993, 'Cost of Ownership and Operation of Heavy Equipment'

Palembang Sriwijaya Media Utama.

Nabar Darmansyah, Drs, 1998, "Mechanical Soil Transfer and Heavy Equipment"
Unsri, Palembang.
Rochmanhadi, Ir, 1993, "Calculation of Implementation Costs for Work with
Using Heavy Equipment”, Public Works Publisher Foundation,
Jakarta.

Introduction
Once we have determined the policy for using the equipment
In construction projects, we must establish cost calculations.
the equipment. Using equipment requires an investment or capital that
must be repaid, which can be used for investment in new equipment,
as a replacement for old equipment and to finance other investments made
in order to complete a job. That is why the equipment costs
is an important factor in construction projects, without repayment.
for the services provided by that equipment, the construction industry services do not
will continue.
The calculation of equipment costs is determined based on unit prices.
work.
In construction techniques, the terms Maintenance and Operating Costs are used.
 this is calculated for each hour. In determining the costs that must be incurred
For the operation of heavy equipment, there are two important parts that need to be considered.

namely ownership costs, where this cost must be incurred whether the tool is in use
operating as well as idle state and the second is the operating cost that
issued only when the tool is in operation. And in determining the unit price of the work
Both costs are considered the most determining factors in the job offer price.

7.1 Cost of Ownership

Ownership costs are also called fixed costs or certain costs.
that is the cost that must be incurred in the use of equipment caused by
investment. There are four components of fixed costs, namely:
- Depreciation expense, which is the cost of the consequences of
lowering the selling price of equipment due to being used or worn out from the age of the equipment

starting from the purchase.

- Insurance costs, which are the costs that must be borne to guarantee compensation.
equipment costs in the event of an accident involving the use of equipment.
- Tax cost/annual tax, which is the cost that must be borne by the existence of the burden.
tax on equipment.
- Interest costs or capital costs, which are the costs that must be borne or money that
borrowed from the bank to buy equipment. If purchased with own capital
interest on capital that is provided when that capital is deposited in the bank.
Before calculating ownership costs and operating costs, first
First, the economic lifespan of the tool must be known. The economic lifespan of the tool is estimated in hours.

that is how many hours the equipment can be used while still generating profit.
This estimate is primarily based on the area or type of work and in
In practice, the economic lifespan of equipment is also influenced by the skill level of the operator and staff.

maintenance and repairs, model and so on. In table 7.1, it can be seen
estimated economic lifespan of heavy equipment.

Table 7.1. Estimated Economic Age of Heavy Equipment

 Source: Cartepillar Performance Handbook, in Nabar, 1998

Depreciation Cost
One method that can be used to calculate depreciation costs is
using the straight line method. This method uses the formula:
D = P - S …………………………………………………. (7.1)
Where:
D = Depreciation Cost
P = Purchase price
S = Selling price of used items

Example Question

A Bulldozer with a purchase price of Rp 300,000,000, and the residual value of the equipment

after 8 years is worth 10% of the purchase price. If the economic lifespan of the tool is
Calculate the annual depreciation cost of the equipment!
Solution:
Total depreciation cost:
D = Rp 300,000,000 - (10% x Rp 300,000,000)
= Rp 300,000,000 - Rp 30,000,000
= Rp 270,000,000
Depreciation expense each year:
Rp 270,000,000
 Dt = ------------------------- = Rp 33,750,000 / year
8 years
Depreciation cost per hour:
IDR 270,000,000
------------------------ = Rp 27,000 / hour
10,000 hours

Insurance Costs, Taxes and Interest

The calculation of these three types of costs is determined by the regulations in force for each.

The year. The possibility of inflation will affect the cost of equipment. Increase
The costs of this inflation increase must also be included in the capital.
To simplify the calculations, an average investment cost formula has been created.
per year. Investment costs consist of the sum of insurance, tax, and interest on
modal. The formula used is:

n1
2n
Lt …………………………….(7.2)
Happy

Where:

It = investment cost
N = number of investment years
P = purchase price
I = percent (interest + tax + insurance)
average working hours (hours/year

Or this exact cost can also be calculated in another way that is commonly used.
in the calculation of actual costs in the field, which uses the formula:

(B–C) x D + F
G = -------------------------- .... (7.3)
W
Where:

G = fixed cost per hour

B = price of the tool

C = the residual value which is the value/price of the relevant equipment

after its economic life ends, usually 10% is taken from
price of the tool.
 D = installment factor / capital return
ix(1 i) A
= ………………………………………………………(7.4)
(1i)1

A = economic lifespan of equipment in years depends on

from the level of use and standards of the manufacturing factory.
F = insurance costs, taxes, interest per year. The amount of this value
taken at 2 per thousand of the device price or 2 percent of the value
remaining tool (0.002 x B) or (0.02 x C)
W = total hours of tool operation in one year
for heavy-duty equipment (enabling work
continuously throughout the year) is considered to work 8
days/day and 250 days/year, then:
W = 8 x 250 x 1 = 2000 hours/year
For equipment that is considered to be working 8 hours/day
and 200 days/year, then:
W = 8 x 200 x 1 = 1600 hours/year
- For equipment that performs light duties, it is considered to work 8 hours/day.

and 150 days/year, then:

W = 8 x 150 x 1 = 1200 hours/year

Example question:

Calculate the ownership cost or the fixed cost of the Bulldozer equipment if the price of the equipment

is Rp 250,000,000. The tool has an average working time of 2000 hours per
the year with an estimated economic life of 5 years, while the residual value of the equipment

is 10% of the tool price with the applicable interest rate of 6

%. Try comparing using both available alternatives!

Solution :

First method:
Delivery price Rp. 250,000,000
The remaining value is 10% Rp.25,000,000.00 (-)
Delivery price for depreciation basis Rp. 225,000,000
Rp. 225,000,000
Depreciation Cost = ------------------------- Rp. 22,500
 2000 hours x 5 years
Interest, tax, insurance cost =

n1 51
xRp 250,000,000 x 0.06
2n 25
Lt = ----------------------------------Rp. 4,500,-
Happy 2000 hours

So the ownership cost per hour = Rp. 22,500 + Rp. 4,500 = Rp 27,000,-
Second way:
(B–C) x D + F
G = --------------------------
W
(Rp. 250,000,000 - Rp. 25,000,000) x 0.237 + Rp. 500,000
= --------------------------------------------------------------------------------
2000 hours
Rp 26,912 per hour

ix(1 i) A 0.06x(1 0.06)5

D = ---------------------------------- 0.237
(1i) 1 (1 0.06) 1

F = 0.002 x Rp 250,000,000 = Rp. 500,000,-

From the two methods above, it can be seen that the difference between the first method and the

the amount is not too large (Rp 326,-) so that the problem can be solved
by using both methods.

7.2 Operating and Maintenance Costs

Operating and maintenance costs are also referred to as variable costs, which are all

the costs incurred for operating equipment in construction work.

Theoretically, the costs that must be incurred in operating and maintenance costs
this includes among others:
1) Fuel costs
The fuel cost is calculated by multiplying the amount of fuel that
Consumption of the equipment with units. The amount of fuel consumption is quite difficult.
determined accurately due to many factors affecting it, for example
Machine HP, work efficiency, field factors, and the tool itself factors. Consumption
Fuel can generally be determined by the formula:

Diesel Engine qf = Hp x f x 0.15

Gasoline Engine qf = Hp x f x 0.23

Where:
qf = amount of fuel required
f = efficiency factor
2) The cost of lubricants and fillers

It is the cost required for lubricant and grease needs.

costs incurred depend on the needs of each hour that
varies according to the size of the machine's HP, the capacity of the machine's tub, and the condition of the ring

piston, oil change interval and the number of parts that require
lubrication and working conditions.
However, if there is no complete data on lubrication oil needs, then it can
determined by the formula:
1,014 HP x f x 0.002716 liters per HP-hour C
q = -------------------------------------------------------+ ----…………..7..6)
0.8868 lb per liter t

Where:
Q the total amount of lubricant oil consumed
HP = Horse Power of the machine
C Crankcase capacity (gallon)
t lubricant replacement interval (hours)

Oil and fat consumption is determined per hour and other costs that need to be
considered like filter costs, where these filter costs can be determined by
calculate the number of filters needed in 1 hour. In tables 7.2 and 7.3
The following shows the calculation of filter cost per hour and consumption
oil and grease lubricate per hour.
In standard calculation format such as in tables 7.2 and 7.3, it may be rare.
met because of inefficiency in time. Therefore, in calculating costs
filter takes a factor number that indicates the filter requirement in 2000
for example, the number of filters needed in 2000 hours is
24 pieces, then this number divided by 2000 hours will become 0.012, and
The figure 0.012 is considered the factor of need per hour.
Table 7.2. Calculation of Filter Cost Requirements Per Hour

(Source: Cartepillar Performance Handbook, in Nabar, 1998)

Table 7.3. Oil and Fat Lubrication Consumption Per Hour

(Source: Cartepillar Performance Handbook, in Nabar, 1998)

3) Tire cost
The tire cost is calculated for wheeled equipment and is usually influenced by
the unit price of tires and the service life of the tires themselves. To determine the service life

Tire services are indeed quite difficult because the age of the tire is heavily influenced.

working conditions in the field, especially for very varied work environments.
The average tire service life can be seen in table 7.4.
Table 7.4. Average Service Age

The service age correction factor for Dump Truck and Scraper tires can be seen
in table 7.5.
Table 7.5. Age Correction Factor for Dump Truck and Scraper Tire Service
 (Source: Cartepillar Performance Handbook, in Nabar, 1998)

By knowing the tire service age, the tire cost can be calculated by
formula:
Tire price (Rp)
Tire cost (Rp/hour) = -----------------------------------..……………….. (7.7)
Tire service life (hours)
4) Chain wheel cost
There are four factors that influence the cost of the chain wheel, namely:
- Undercarriage Basic Factor
It is the basic factor for chain wheel costs. This factor has
the greatest influence on chain wheel costs. This factor number
different for each tool and always changes according to the shift of time.
- Impact Factor
It is a factor number that indicates the level of impact that occurs.
on the chain wheel when operating in the field. In practice, the factor
this collision is based on three conditions namely:
- high impact: there are bumps on the road surface
more than 15 cm high
- Moderate collision: some road surfaces can be flattened, with height
- a lump between 7.5 to 15 cm.
- low impact: the entire road surface can be flattened and bumps
enter into the ground.
Abrasiveness Factor
It is a factor number that indicates the wear level on the chain wheel.
when passing over a certain type of road surface. This level of wear is divided into
3 conditions, namely:
high wear: when a type of tool passes over a dirt road surface
wet, containing sand and sharp gravel.
moderate wear: the dirt road surface is somewhat wet and contains sand
and sharp pebbles
low wear: the dry dirt road surface contains little
sharp material.
- Z” Factor
It is a factor number that indicates the level of maintenance and
operation of the equipment.

The basic factor for the chain wheel of this factor can be found in table 7.6.

Table 7.6. Chain Wheel Basis Factor

 Source
Caterpillar Performance Handbook, in Nabar, 1998
From the figures of the chain wheel base factor, impact, abrasiveness and 'Z', it can be
the cost of the chain wheel is determined by the formula:

Chain wheel cost = Base Factor x (I + A + Z) x exchange rate ……………… (7.8)

Where:
Exchange rate = currency exchange rate based on the standard due to the basis factor.

America.
5) Repair costs
Repair costs are the expenses incurred for repairs in
periodic maintenance of equipment. Repair costs are very difficult to determine because
the existence of very high variation. To facilitate calculations, costs
repairs start from operational equipment until it is decommissioned (throughout
economic lifespan), estimated to be 80% to 90% of the costs
total depreciation.
6) Special equipment costs
The cost of special equipment is the expense incurred for
equipment such as cutting edges, ripper tips, bucket teeth, and others. Here
including the costs of cleaning on the boom and stick. These costs are very
varies depending on usage, type of material, and operating technique.
In general, to calculate the costs of this special equipment is the same as
tire cost. There are two factors that influence it, namely the unit price and the age.

the service. The formula used is:

Special Equipment Price (Rp)
Special equipment costs = ------------------------------------------… (7.9)
 Service Age (hours)
7) Operator costs
Operator costs can relatively be determined because this is a provision.
made directly before the operator works. Usually determined based on
the applicable provisions or agreements between both parties. Usually calculated
wage per hour of equipment operation.
Considering the many varieties of equipment from various brands that will

used, the estimator will find it difficult when calculating costs

operation and maintenance using the manual for each relevant tool.
To facilitate the calculation of the operating and maintenance costs of a piece of equipment

used the applicable approximation formulas.

Formulas for calculating the approach to operation and maintenance costs
the following is as follows:
A. Fuel cost (H)
The amount of fuel used for the drive engine is
depending on the size of the machine's capacity which is usually measured in HP (Horse

Power
H = (12.50% to 17.50%) x Ms x HP ............ (7.10)
Where:
H = the amount of fuel used in 1 hour per 1 liter
HP = engine power capacity in HP
12.50% = for light-duty equipment
17.50% = for heavy-duty equipment
B. Lubricant costs (L)
The amount of lubricant (total lubricant usage) used for the equipment
the concerned party is calculated based on the engine capacity measured with
HP.
L = (1.00% to 2.00%) x Mp x HP ................................ (7.11)

Where:
 L the amount of lubricant used in 1 hour in 1 liter
HP the capacity of the engine in HP
1% = for simple equipment
2% for equipment quite complex

C. Repair and maintenance costs (K)

To calculate the costs of spare parts, tires, batteries, equipment repairs, and others.

as such
related to improvements in work hours used an approach

B
K = (12.50% to 17.50%) x -----………………………….…... (7.12)
W
Where:
B cost price of the tool
W total working hours in 1 year
12.5% = for light-duty equipment
17.5% = for heavy-duty equipment

D. Operator Costs (M)

Wages in operating costs are usually distinguished between wages for operators/
wage driver for operator assistants. As for the amount of the wage for
the operator/driver and his assistant are calculated according to
calculating wages
calculated in hours.

Example Question:

Calculate the operating and maintenance costs of the Dump Truck with the equipment model

775 B/ 100 HP using both methods, if the known data is

is as follows:
Tool price IDR 500,000,000.00
Operating hours per year 2000 hours
Tire replacement cost IDR 40,000,000.00
Tire service age = 4000 hours
Diesel fuel 23 liters/hour = Rp 5500 per liter
Machine lubricant 0.273 liters/hour = Rp 20,000 per liter
Transmission Oil 0.101 liters/hour Rp 20,000 per liter
Final Drive Lubricant 0.078 liter/hour = Rp 20,000 per liter
Hydraulic lubricant 0.0475 liters/hour = Rp 20,000 per liter
- Grease 0.058 kg/hour = Rp 25,000 per kg
Filter 0.012 pieces/hour Rp 30,000 per piece
Operator Wages Rp 8000 per hour
Solution:
Way 1
Fuel cost = 23 liters/hour x Rp 5500 = Rp 126,500.00
Cost of lubricants, filters, and grease =
- Machine lubricant = 0.273 liters/hour x Rp 20,000 Rp 5,460.00
Rp 2,020.00
- Transmission Lubricant = 0.101 liters/hour x Rp 20,000
Final Drive Lubricant = 0.078 liters/hour x Rp 20,000
IDR 1,560.00
0.0475 liters/hour x Rp 20,000 = Rp 950.00
Grease = 0.058 kg/hour x Rp 25,000 Rp 1,450.00
- Filter = 0.012 pieces/hour x Rp 30,000 Rp 360.00
Rp 40,000,000.00
Tire cost = -------------------------- = Rp 10,000.00
4000 hours

- Operator = Rp 8,000.00
Total operating and maintenance costs per hour Rp 156,300.00

Way 2:
Fuel = 17.5% x Rp 5500 x 100
- Lubricants = 1 % x Rp 20000 x 100

Rp. 500,000,000
- Repairs and maintenance = 17.5% x ---------------------- = Rp 43,750.00
2000
Operator = Rp 8,000.00

Total operating and maintenance costs per hour Rp168,000.00

Summary
 Ownership cost is also called fixed cost or certain cost.
that is the cost that must be incurred in the use of equipment caused by
Depreciation cost
Insurance costs
Tax fee/annual tax
Interest costs or capital costs of investment. There are four components of costs.
namely:
Operating and maintenance costs are also called variable costs, which include all

the costs incurred to operate equipment in the work

construction.
Theoretically, the costs that must be incurred in operating costs and
this maintenance includes among others
Fuel costs
Lubricant and filter costs
Tire expenses
Chain wheel cost
Repair costs
Special equipment costs
Operator cost
In general, the calculation of operating and ownership costs can
performed with two alternatives. Both alternatives can be summarized in
a table as shown in tables 7.7 and 7.8.

Table 7.7. Calculation of Operating and Ownership Costs

Table 7.8. Calculation of Operating and Ownership Costs using the Short Approach Formula

(Source: RAB Road Department of Public Works, 2006)

LIST OF RENTAL COSTS PER HOUR OF WORK

Practice Questions:

1) Calculate the ownership cost of heavy equipment Excavator if the transfer price is known.
The equipment costs Rp 700 million. Meanwhile, the remaining value of the equipment after 10 years is estimated to be 10%.

from the price of the tool, while the average working hours of the tool per year is 2000 hours and

the applicable interest rate is 12.5%!

2) Calculate the ownership cost of the Bulldozer heavy equipment if the delivery price is known.
tools worth Rp 950 million. Meanwhile, the estimated residual value of the tools after 5 years is 30% of

the price of the tool, while the average working hours of the tool per year is 1500 hours and

interest rate 12%, insurance 1% and tax 1%!

3) Calculate the ownership cost of the Motor Grader if the price is known
delivery of equipment Rp 800 million.

Meanwhile, the remaining value of the equipment after 10 years is estimated to be 10% of the equipment's price, while the hours

The average working time of the tool per year is 1500 hours and the applicable interest rate is 12%!
4) Calculate the operating and maintenance costs of the Concrete Vibrator that has
The capacity of the tool is 4 HP with a price of IDR 11 million. Meanwhile, the average working hours

per year is 1500 hours with an interest rate of 12.5%!

5) Calculate the operating and maintenance costs of Dump Truck model 814 B, if
the known data is as follows:
Operating hours per year 1500 hours
Tire replacement cost = Rp 50 million
Tire service age = 3000 hours
Diesel fuel 24 liters per hour
Cranckcase 0.113 liters per hour
Transmission 0.06 liters/hour
Final Drive = 0.051 liters/hour
Hydraulic Control 0.043 liters/hour
Fat and loose 0.019 kg/hour
Filter 0.01 pieces/hour
6) Calculate the ownership and operating costs of the Excavator model E 110 B/ 140 HP
with the equipment price of IDR 750 million, if the average working hours of the equipment is 1500 hours/year

with an economic lifespan of 5 years and a residual value of 10% of the equipment price and

the applicable interest rate is 18%.

7) Calculate the ownership and operating costs of the Wheel Loader with the data provided.
 as follows:
Price of equipment Rp 600 million
Useful life 5 years
Operating hours per year 1500 hours
Remainder 25% of the price of the tool

Tire replacement cost Rp 45 million

Tire service age 4000 hours
Money flower 12% per year
Tax = 1% per year
Insurance = 1% per year
Diesel fuel 7.5 liters/hour
Cranckcase 0.038 liters/hour
Transmission 0.023 liters/hour
Final Drive 0.009 liters/hour
Hydraulic Control 0.036 liters/hour
Fat tender 0.082 kg/hour
Filter 0.015 units/hour
Note:
Assumption of the price list for wages, fuel, and lubricants used:
Operator Rp 8500 per hour
Operator Assistant Rp 8000 per hour
Gasoline = Rp 6000 per liter
Solar = Rp 5500 per liter
Lubricants Rp 20,000 per liter
Fat liver = Rp 25,000 per liter
Filter = Rp 30,000 each