The capital comprises of a large part of any business. It is not really possible to go on about a business without investing a certain amount of money. The importance of the capital becomes all the more prominent when it is the construction industry in question. Talking of the construction industry one cannot deny the fact that a huge amount of the capital required goes into the purchase and maintenance of heavy construction equipment.
Life Cycle Cost Of Construction Equipment- What Does It Mean?
When the heavy construction equipment forms such an important part of the entire construction industry, it is quite obvious that a lot of thought must go into the purchase of these equipment. The heads of the construction company undergo a lot of consideration when purchasing these equipment and the life cycle cost evaluation of heavy construction equipment forms a major part of these considerations.
So, what exactly is meant by life cycle cost calculation? Well, life cycle cost of construction equipment refers to the total cost that is incurred on particular heavy construction equipment, right from its inception, maintenance to its disposal. In other words it is nothing but the cost estimate of its entire life cycle. The next question that must strike you is why at all would a construction organization need to evaluate construction equipment life cycle cost? The answer to this question is very simple- this evaluation allows the companies to come up with the most cost effective measures of seeing construction equipment through their entire life cycle.
Evaluating the Life Cycle Cost of Your Heavy Construction Equipment
Evaluation of construction equipment life cycle cost has proved to be quite influential on a number of important aspects of a particular construction company, the budget, for instance. The entire calculation process has been divided into five steps- assessment of the cost of acquisition, establishing the depreciation rate, taking fixed costs into account, taking into account the cost of operating the equipment and finally adding up the whole thing. While calculation of the cost of acquisition includes all the associated factors, such as the variables and incentives, the depreciation rate is calculated by means of the straight-line method.
The evaluation of the life cycle cost of the heavy construction depends largely on the mode by which it is acquired. It is a widely known fact that construction equipment may be acquired by a construction company in two different ways- by leasing it or purchasing it. Though purchasing heavy equipment may mean quite a huge investment for a construction company, there remains the fact that you are at an advantageous position with the machine at your disposal. Opting for leased heavy equipment, on the other hand, effectively eliminates the factor of high investment issues. Companies are also spared the need to go through extensive maintenance procedures, thereby, earning greater profit. All the above factors, therefore, need to be considered whenever a company goes for the life cycle cost calculation of heavy equipment.