After all this time there is still confusion of direct equipment costs vs direct job costs. A construction company that has a lot of equipment has to deal with decisions about where to budget that in, to the project that the equipment is being used on, or to the actual piece of equipment. There are a few ways this dilemma is being handled in the construction industry.
There are some software solutions that don’t provide equipment cost capabilities. They don’t determine individual equipment cost, just a round number to add to the overall project cost. Because of this, construction companies that have this type of software rarely know how much money a piece of equipment is actually making them. It has a domino effect because if a company doesn’t know the exact worth of any one piece of equipment, the estimators in that company are unable to make distinct predictions of equipment cost on each job. Therefore, the company is over or under bidding because they don’t have a true estimate for the job. The same mistakes get made time and time again, and the company doesn’t see the financial growth it should.
There’s the confusing practice that some construction companies are doing of separating some costs for labor and parts to the piece of equipment, but on the other hand charging some to the job. An example of this is maintenance and repairs to the piece of equipment is charged to the piece of equipment, while fuel is charged to the project it’s working on. However, if the piece of equipment needs to be repaired while working on the project, it is charged to the project. This makes estimating accurately near impossible because an equipment repair is usually extremely costly and very unpredictable. So the actual cost of the equipment isn’t correct and the actual cost of the project is wrong as well.
According to Dr. Mike Vorster, head of the Construction Equipment Management Professionals group, the best way to handle direct equipment costs vs direct job costs is to charge ALL expenses to each individual piece of equipment and then charge projects and hourly rate to cover the costs that equipment incurs.
Finding the perfect hourly rate may be difficult, but there are excellent software packages that provide data collection services via mobile devices and solve this problem. Using this software you are able to see exactly how the piece of equipment is performing in real-time, plans for regular maintenance on the equipment which prevents break downs, and helps you be prepared for when it comes time to replace old equipment.
The leading construction companies in the industry have adopted this phenomenal new software to control their equipment costs. All expenses get attached to the actual piece of equipment, including owning and operating costs. By being able to know the exact cost of each piece of equipment your company owns, your estimates will be accurate, you will have greater control over the actual job costs and you will get the most out of the life of your equipment.
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