Introduction to construction management

Introduction to Construction Management

Presentation By: Aditi K. Shah

Content

▪ Importance of machineries in construction

▪ Classification of Construction Equipment

▪ Plants & Equipment used in construction

▪ Factors affecting selection of construction equipment

▪ Financial aspects related to construction equipments

▪ Discounted present worth analysis

▪ Depreciation

▪ Cost of owning and operating construction equipment

▪ Economic life of construction equipment

▪ Equipment replacement policy

The importance of machineries for construction

▪ Work can be completed fast.

▪ Cost of project is reduced.

▪ Less number of laborers required.

▪ Excavation work can be carried out rapidly by using Power shovel, Dragline etc.

▪ Output is higher

▪ Transportation of construction materials can be done easily by using Trucks, Wagons, Dumpers etc.

▪ Heavy loads can be lifted with the help of Tower crane, Elevator etc.

The importance of machineries for construction (contd.)

▪ Better quality in construction is obtained by using construction equipments.

▪ E.g.: canal lining, concrete spreading, compaction & finishing are carried out by lining machine.

▪ Finishing & rolling of bituminous roads is not possible without Rollers.

Power Shovel

Dragline

Dumper

Tower

Crane

Lining Machi

ne

Concrete

Mixer

Bulldozer

Scrapper

Aircompres

sor

BeltConvey

or

Classification of Construction Equipment(according to work cycle)

1. Intermittent Type: a. Bulldozers

b. Scrappers

c. Power Shovels

d. Concrete Mixers

e. Dragline

2. Continuous Flow Type: a. Air Compressors

b. Belt Conveyors

3. Mixed Type: a. Motor Graders

Classification of Construction Equipment(according to nature of Automation)

1. Manually Operated Equipment

2. Semi-Automatic Equipment

3. Fully Automatic Equipment

Classification of ConstructionEquipment(according to Standardization of machine)

1. Standard Equipment

2. Special Equipment

Difference B/w Standard and Special Equipments

Standard Equipment▪ Commonly used in all projects

▪ Manufactured commonly & easily available from dealer

▪ Initial investment is low

▪ Resale price is high

▪ Delivery is easy & fast

▪ Repairs and spare parts are easily found

▪ Disposal is easy

▪ Unit cost of production is less

▪ Rent is low and reasonable

▪ E.g. Canal Trimmer

Special Equipment▪ Used only in special cases

▪ Manufactured as per requirements, special order has to be placed

▪ Initial investment is high

▪ Resale price is low

▪ Delivery is difficult & delayed

▪ Repairs and spare parts are difficult to find

▪ Disposal is difficult

▪ Unit cost of production is high

▪ Rent is high and unreasonable

▪ E.g. Belt Conveyor

Plants & Equipments used in Construction

▪ Equipment for Excavation

▪ Earthmoving equipment

▪ Hauling equipment

▪ Hoisting equipment

▪ Conveying equipment

▪ Pile driving equipment

▪ Drilling equipment

▪ Equipment for production of aggregate

▪ Plant for grouting and guniting

▪ Machineries for bituminous road

▪ Machineries for concrete works

▪ Dredging equipment

Equipment for

Excavation

Earthmoving

Equipment

Hauling Equipm

ent

HoistingEquipment

Conveying Equipment

PumpingEquipment

Compactingequipment

Pile DrivingEquipment

Drilling Equipment

Equipment for production of

Aggregate

Grouting

Guniting

Machinery for Bituminous Road

Dredging Equipment

Factors affecting the selection of Construction Equipment

1. Use of standard equipments

2. Size of equipment

3. Uniformity of type

4. Country of origin

5. Initial cost of equipment

6. Availability of spare parts

7. Unit cost of production

8. Operating facility

9. Suitability for future

Financial aspects related to construction equipments

▪ How to arrange finance

▪ Whether to buy or hire

Sources of equipment

Long term

BuyDown payment

On loans mobilized

Payment in installments

Lease

Time lease

Leasing with

option to buy

later

Short term

Direct purchase

Advantages▪ Equipment is always

economically operated

▪ It receives better care & maintenance

▪ It can be available and used at any time

Disadvantages▪ If equipment becomes obsolete, it

is useless

▪ Large sums involved remain blocked

▪ Tendency to perform work as per available equipment

▪ Disposal is difficult

▪ Equipment may be used beyond its economic life

▪ Equipment may remain in idle condition for some time

Hiring (advantages)

▪ Little care is required for maintenance and storage

▪ Desired equipment is available in working order at short notice

▪ Investment costs can be diverted to other better purposes

▪ No fear of obsolescence of equipment, full advantage is taken by contractor of the improved technical aspects of equipment

▪ If found useful, equipment can be bought later

Examples- Purchase/ Hire

▪ The original cost of bulldozer power shovel is Rs. 4 lacs & its salvage value is 8% of the original cost. The bulldozer is use for 1200 hours/year and its life is 4 years. The hiring charges for the bulldozer incl. maintenance & repairs is Rs. 20000/month. Suggest whether the bulldozer should be purchased or hired.

Solution: (on the board)

Discounted Present Worth Analysis

▪ It involves calculating the present value of all amounts involved in all the alternatives to determine the present worth of the proposed alternatives.

▪ Decision problems may be of two types:

a. Revenue dominated cash flow diagram b. Cost dominated cash flow diagram

What is Inflow and Outflow:

(a) Revenue Profit dominated cash flow diagram:

▪ In this type of cash flow diagram, the revenue, profit, salvage value, etc. (inflows) will be assigned a (+ve) sign while costs (outflows) will be assigned.

▪ Finally, the alternative having the maximum present worth amount should be selected as the best alternative.

(b) Cost dominated cash flow diagram:

▪ In this type of diagram, the cost(outflows) will be assigned with (+ve) sign and revenue, profit, salvage value(all inflows) etc. will be assigned with (-ve) sign.

▪ Finally, the alternative having the minimum present worth amount should be selected as the best alternative.

Depreciation

▪ It is the gradual loss in the value of the property due to its use, life, wear, tear and decay.

▪ It is dependent on its original condition, quality of maintenance & mode of use.

▪ Usually a % of depreciation per annum is allowed, which gradually increases with time

▪ Present value of property = Initial cost - Total amount of depreciation

Types of depreciation

a) Physical depreciation

1. wear and tear from operation

2. action of time and other elements

b) Functional depreciation

1. inadequacy or suppression

2. obsolescence

Methods of Calculating Depreciation:

1. Straight Line method

2. Constant Percentage method

3. Sinking Fund method

4. Sum of Digits method

5. Service Output method

Straight Line methodAssumption: Property loses its value by the same amount every year.

Therefore, Annual Depreciation= Annual Decrease in property value

where, D= Annual Depreciation

C= Original Cost

Depreciation of property after m years: S= Scrap Value

n , m= life in years

Therefore, Book value after m years:

Constant Percentage method▪ Assumption: Property will lose its value by a constant

percentage of its value at the beginning of every year.

Where, p= % rate of annual Depreciation

S= Scrap value

C= Original cost

n= life in years

▪ If any age of property is m years, the value of property after m years:

Sinking Fund method▪ Assumption: depreciation of the property = the annual

sinking fund + interest on the sinking fund for that year

▪ If I is the rate of interest, the annual sinking fund installment(p) to accumulate 1 Rs in m years:

▪ If I is the rate of interest, and 1 Rs is deposited every year, total sinking fund accumulated at the end of n years:

▪ Rate of depreciation in n years:

Factors affecting Cost of Owning & operating Equipment:

▪ Cost of the equipment to the owner

▪ Demand of the equipment at the end of its useful life

▪ Number of hours it is used per year

▪ Number of years it is used

▪ Severity of conditions under which it is used

▪ State of maintenance and repairs

Costs to be considered for owning and operating equipment:▪ Depreciation Cost

▪ Investment Cost (Average investment= )

▪ Maintenance and repair Cost

▪ Operation Cost (Repair charges, Depreciation on tyres and tubes, Labour Charges, Fuel Charges, Operators and maintenance crew charges, Miscellaneous Supplies)

▪ Down time Cost

▪ Obsolescence Cost

▪ Replacement Costs

NumericalFor construction Equipment following information is available.

Initial cost of acquisition = Rs 6500000

Cost of tyre sets = Rs 350000, replaced after every 4500 hours

Cost of lubricants, minor

Repairs and maintenance = Rs 1100/hour

Estimated life = 13500 hours of operation

Estimated salvage value = 15% of initial cost

Estimated usage of equipment= 1500 hours/year

If MARR is 20% per year, Estimate minimum hourly rental charges for equipment

Economic life of Construction Equipments:

Equipment should be replaced under following circumstances:

1. Depreciation

2. Downtime

3. Inadequacy

4. Normal Deterioration

Equipment Replacement Policy:

A firm has to face three type of decisions:

1. The replacement of equipment as it wears out

2. The equipment required for expansion

3. The replacement of old technology by new

Equipment is replaced before its estimated life to:

▪ Reduce production cost

▪ Reduce fatigue

▪ Raise quality

▪ Increase output

▪ Secure greater convenience, safety and reliability

What not to consider while selecting an equipment:

For Equipment in Use

▪ Original Cost

▪ Money already spent on repairs and maintenance

▪ Unrealistic book value

For New Equipment

▪ Any savings not clearly assessable

▪ Overhead charges

Thank you