Major Equipment Life-cycle Cost Analysis final report

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  • Major Equipment Life-cycle Cost Analysis

    Douglas D. Gransberg, Principal InvestigatorInstitute for Transportation

    Iowa State University

    April 2015

    Research ProjectFinal Report 2015-16

  • To request this document in an alternative format call 651-366-4718 or 1-800-657-3774 (Greater Minnesota) or email your request to ADArequest.dot@state.mn.us. Please request at least one week in advance.

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  • Technical Report Documentation Page 1. Report No. 2. 3. Recipients Accession No. MN/RC 2015-16 4. Title and Subtitle 5. Report Date Major Equipment Life-cycle Cost Analysis April 2015

    6.

    7. Author(s) 8. Performing Organization Report No. Douglas D. Gransberg and Edward Patrick O Connor 9. Performing Organization Name and Address 10. Project/Task/Work Unit No. Iowa State University Institute for Transportation 2711 South Loop Drive, Suite 4700 Ames, Iowa 50010-8664

    11. Contract (C) or Grant (G) No.

    (c) 99004 (wo) 8

    12. Sponsoring Organization Name and Address 13. Type of Report and Period Covered Minnesota Department of Transportation Research Services & Library 395 John Ireland Boulevard, MS 330 St. Paul, Minnesota 55155-1899

    Final Report 14. Sponsoring Agency Code

    15. Supplementary Notes http://www.lrrb.org/pdf/201516.pdf 16. Abstract (Limit: 250 words) Equipment life-cycle cost analysis (LCCA) is typically used as one component of the equipment fleet management process and allows the fleet manager to make equipment repair, replacement, and retention decisions on the basis of a given piece of equipments economic life. The objective of this research is to develop a robust method that permits equipment fleet managers to maximize the cost effectiveness of the fleet by optimizing the overall life-cycle value of each piece in the fleet. Minneapolis Public Works Fleet Services Division (MPWFSD) equipment fleet data was utilized in developing the proposed stochastic LCCA model for public agencys fleet. The research compared output using actual data from current software to the output from the new stochastic LCCA method using equipment deterioration curves and probabilistic input variables for capital costs, fuel, and other operating costs to demonstrate enhanced ability to optimize fleet management decisions. The interest rate was found to have a greater impact on economic life output than fuel prices for a dump truck. The fuel volatility did impact the life-cycle costs when applying the stochastic confidence levels. Based on Monte Carlo simulation sensitivity analysis results, the time factor and engine factor were found to be the most sensitive input variables to the LCCA model. This leads to the conclusion that when deciding to replace a piece of equipment, engine efficiency should be a high priority due to the costs associated with the time factor, engine factor, and its subsequent annual usage.

    17. Document Analysis/Descriptors 18. Availability Statement Equipment life-cycle cost analysis, Equipment maintenance, Fleet management, Benefit cost analysis

    No restrictions. Document available from: National Technical Information Services, Alexandria, Virginia 22312

    19. Security Class (this report) 20. Security Class (this page) 21. No. of Pages 22. Price Unclassified Unclassified 107

  • Major Equipment Life-cycle Cost Analysis

    Final Report

    Prepared by:

    Douglas D. Gransberg Edward Patrick OConnor Institute for Transportation

    Iowa State University

    April 2015

    Published by:

    Minnesota Department of Transportation Research Services & Library

    395 John Ireland Boulevard, MS 330 St. Paul, MN 55155

    This report represents the results of research conducted by the authors and does not necessarily represent the views or policies of the Minnesota Local Road Research Board, the Minnesota Department of Transportation, or Iowa State University. This report does not contain a standard or specified technique. The authors, the Minnesota Local Road Research Board, the Minnesota Department of Transportation, and Iowa State University do not endorse products or manufacturers. Any trade or manufacturers names that may appear herein do so solely because they are considered essential to this report.

  • ACKNOWLEDGEMENTS

    The authors of the report would like to acknowledge the support provided for this project by the Minnesota Local Roads Research Board, with special thanks to John Scharfbillig and the members of the research oversight panel.

  • TABLE OF CONTENTS Executive Summary ........................................................................................................................ 1 Chapter 1 ......................................................................................................................................... 1

    1.1 Background ...................................................................................................................... 1 1.1.1 Equipment Life ......................................................................................................... 1 1.1.2 Physical life ............................................................................................................... 2 1.1.3 Profit life ................................................................................................................... 2 1.1.4 Economic life ............................................................................................................ 2 1.1.5 Life-cycle Cost Analysis ........................................................................................... 3 1.1.6 Stochastic Modeling.................................................................................................. 3 1.1.7 Peurifoy and Schexnayder Equipment LCCA Model ............................................... 4 1.1.8 Public Agency Financial Constraints ........................................................................ 4

    1.2 Research Objectives ......................................................................................................... 6 1.3 Problem Framework and Methodology............................................................................ 6

    1.3.1 Task Description ....................................................................................................... 7 1.4 Project Schedule ............................................................................................................... 9 1.5 Content Organization ....................................................................................................... 9

    Chapter 2 ....................................................................................................................................... 11 2.1 Equipment Ownership Costs .......................................................................................... 11

    2.1.1 Depreciation ............................................................................................................ 11 2.1.2 Investment (or interest) cost.................................................................................... 11 2.1.3 Insurance Costs, Taxes, and Storage Cost .............................................................. 12

    2.2 Equipment Operating Costs ........................................................................................... 12 2.2.1 Maintenance and Repair Cost ................................................................................. 12 2.2.2 Tire Cost.................................................................................................................. 12 2.2.3 Consumable Costs ................................................................................................... 13 2.2.4 Fuel Cost ................................................................................................................. 13 2.2.5 Lubricating Oil Cost ............................................................................................... 13 2.2.6 Equipment operator cost ......................................................................................... 13 2.2.7 Special Items Cost................................................................................................... 13

    2.3 Methods of Calculating Ownership and Operating Cost ............................................... 13 2.3.1 Caterpillar Method .................................................................................................. 14 2.3.2 Corps of Engineers Method .................................................................................... 15 2.3.3 The Associated General Contractors of America (AGC) Method .......................... 16

  • 2.3.4 Peurifoy/Schexnayder Method................................................................................ 16 2.4 Equipment Replacement Procedures .............................................................................. 17 2.5 Replacement Analysis .................................................................................................... 18

    2.5.1 Theoretical Methods ............................................................................................... 18 2.5.2 Intuitive Method...................................................................................................... 19 2.5.3 Minimum Cost Method ........................................................................................... 19 2.5.4 Maximum Profit Method ........................................................................................ 19 2.5.5 Payback Period Method ..........................................................................................