The critical thing to understand about equipment operating costs is that they are variable costs incurred when the asset is being utilized (operated).
Additionally, properly allocating the operating cost of an asset requires the use of several standard financial accounting concepts, like economic life and depreciation.
To calculate your cost, you need to know what data to include. Here at IronUp, we recommend the following components in your operating cost calculation, broken down by cost type:
Other Asset-Specific Variable Costs:
Components Impacting Length of Cost Window:
You can have a different list of inputs to go into your operating cost calculations, but the above represents a generally accepted best practice for all relevant costs.
O&O Costs are probably one of the most misused phrases in the construction equipment universe. Ownership costs are fixed costs incurred only at the birth of the equipment and always decrease over time. These costs are all capex cost inputs generally connected to the allocation of the purchase price of the machine.
Operating costs can be controlled and improved by those operating and maintaining the equipment. Ownership costs cannot – they are financial accounting concepts not controlled through operation.
Equipment operating costs are represented as rates in two ways:
To calculate your costs, you need to have access to the cost component inputs that go into the cost equation and a consistent calculator to do the math, either in Excel or as software.
Yes! It’s key to know that operating costs are not unique to the construction equipment market. They live in any asset-based industry, e.g. trucking, automobile and maritime.
With that in mind, here are some non-Excel based tools to help you calculate equipment ownership costs:
Operating costs for rented equipment are often a sensitive subject. Fuel is the obvious cost responsibility of the renter/operator, and general wear and tear componentry are the responsibility of the rental supplier, but often billing disputes arise over any damage that may be perceived as beyond normal use.