Heavy equipment can be a heavy expense for a construction company. Yet, by effectively managing equipment and not treating it as an overhead expense, your equipment could work for you and turn into a profit center for your company.
Equipment is often the largest expense for a construction project and if not managed properly the contractor’s profitability could be negatively affected.
So, how can managers and owners ensure that each piece of equipment is achieving the highest productivity possible and at the lowest possible cost? There are three ways: 1) maximizing utilization; 2) minimizing downtime; and 3) recovering costs.
To address these three areas efficiently, successful construction businesses are using equipment asset management tools in their construction business management software, which works seamlessly with their estimating, project management, financial management, and other applications. Doing so, contractors can effectively manage equipment throughout a project lifecycle as well as throughout the life of a piece or fleet of equipment.
Utilization is a must-discuss issue when addressing equipment costs. Knowing how many hours a piece of equipment has been utilized during a year helps determine the rate at which fixed annual costs can be recovered. When equipment is underutilized (frequently sitting idle) there are no costs that can be billed to jobs and the ownership or rental cost of that equipment is an unbillable expense. By boosting equipment utilization, you have more opportunity to bill its cost to projects and thus can increase profitability.
Having the right tools in place to monitor equipment utilization on an ongoing basis enables contractors to identify equipment that is underutilized and find ways to control and correct it. In order to maximize utilization, a business management software solution can help a contractor better analyze their utilization by tracking idle time, down time, and productive time. Having the right equipment in the right place at the right time for the right job is essential to achieving optimal utilization and will give project managers the confidence that the right machine is being used for the right task.
Many consider that a piece of equipment being used is more costly than one sitting idle since it has added costs, such as fuel, electricity, wear and tear, etc. However, idle equipment can negatively impact profitability even more. When a piece of equipment breaks down, not only do you have to factor in the cost of a repair, but you also must consider the fact that it may disrupt the project schedule and hinder the productivity of the employees as they will be focusing on fixing the equipment and not getting the job done. With unexpected break downs, contractors must rush to bring mechanics to the job site and get the necessary parts delivered. This is often a much more expensive and frustrating option than performing regular maintenance on your equipment. Making sure your equipment is operable and available when it is needed is critical to turning your equipment into a valuable asset versus a financial burden.
Preventative maintenance is critical to optimal profitability. Yes, it requires an expense of time and money, but it is a worthwhile investment that will help improve reliability, reduce future repair costs, and increase the lifespan of your equipment.
Using software to manage equipment you have the necessary information at your fingertips about each piece of your equipment and can schedule predictive repairs before your equipment ever breaks down. By automating your preventative maintenance schedule you will be able to consistently service your equipment, ensure the right preventative maintenance plan for each piece of equipment is followed, and extend the life of your equipment fleet.
Automating your equipment asset management processes also enables you to track warranties, preventing you from paying for a replacement part or repair that is still covered under your warranty. The automated alerts that business management software provide make tracking warranties easy and enable contractors to avoid unnecessary costs.
Having detailed information on each piece of equipment also enables a contractor to make more educated decisions on whether to sell, replace, or rebuild a piece of equipment. With all the operational, financial, and mechanical data available in a business management software solution, the decision makers can drill down to the information they need and make an intelligent decision. You can also set the requirements for equipment acquisition and disposal, enabling you to make informed decisions about when to return rental pieces, when to dispose of unused equipment, or when to acquire additional pieces of equipment.
With tools to track P & L by equipment or group of equipment, managers can monitor return on investment for an equipment fleet and recover costs associated with equipment fleets by appropriately charging projects and plants. Understanding the makeup of your equipment fleet and achieving peak performance of your equipment investment are two important steps toward increasing profitability.
To significantly improve your overall profitability you can make equipment management a profit center for your company. If you consider equipment an overhead cost and not billing costs of equipment to your jobs, you are missing an opportunity to make your equipment really work for you.
In the same way that labor and materials are billed directly to individual projects, equipment usage and associated costs should also be billed to the individual jobs on which they are used. An equipment management solution can make recovering equipment expenses on each job an easy task. By using construction-specific software to handle job costing and project management processes and capturing equipment usage costs, contractors can bill their equipment expenses directly to the appropriate project on which the equipment is used. For those contractors who have always accepted the cost of equipment as their own, this re-allocation of expenses can create a new profit center for their business.
Extending the Value of Your Equipment
Today, it is more important than ever to control costs. Contractors tend to center their attention on cutting labor and material costs during tough economic times; however, equipment costs, especially for heavy contractors, can dramatically impact their financials even more than their workforce and material costs.
Implementing the right construction management software to streamline processes and improve accuracy from bid-to-cash can be a great solution to keep jobs on schedule and on budget, as well as to help gain a competitive edge. Using business management software you are able to obtain the highest productivity possible from your equipment, at the lowest possible cost, and extend the lifespan of your equipment -- helping turn what you might consider your equipment burden into a true profit center for your company.
About the Author
Dan Lehman is Vice President, Product Management of Maxwell Systems, a leading provider of complete construction business management software solutions. For more information, please visit www.maxwellsystems.com.