Final Report The Replace Repair Decision For Heavy-Books Pdf

FINAL REPORT THE REPLACE REPAIR DECISION FOR HEAVY
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DISCLAIMER, The contents of this report reflect the views of the authors who are responsible for the. facts and the accuracy of the data presented herein The contents do not necessarily reflect the. official views or policies of the Virginia Department of Transportation the Commonwealth. Transportation Board or the Federal Highway Administration This report does not constitute a. standard specification or regulation, Copyright 2004 by the Commonwealth of Virginia. The fleet of equipment operated by the Virginia Department of Transportation VDOT. constitutes a large investment on the order of half a billion dollars A means of identifying. earlier and more accurately those pieces of equipment whose timely replacement would keep the. cost of maintaining and operating the fleet to a minimum might entail significant savings for. VDOT The purpose of this study was to evaluate the realism of several cost forecasting. equations with a relatively small set of equipment cost data The approach used in the study was. 1 a survey of the practice in other states and other agencies and 2 regression analysis of a set. of available maintenance and repair cost data from VDOT s Equipment Management System. The authors found that a logarithmic model of variable cost as a function of fuel expense. provides a plausible fit to the cost data but that a great deal of the variation in the data remained. unexplained The authors recommend that when identifying candidates for replacement from. among the hundreds of superficially identical machines within a given equipment type. VDOT s central office and district equipment management compute one additional statistic the. ratio between the average labor and parts cost per dollar of fuel or per mile year to date and the. average labor and parts cost per dollar of fuel or per mile life to date This statistic would. permit an estimate of the expected unit cost for the following year The authors further. recommend that more equipment cost data be archived at the end of each fiscal year. FINAL REPORT, THE REPLACE REPAIR DECISION FOR HEAVY EQUIPMENT. James S Gillespie, Senior Research Scientist, Adam S Hyde. Research Associate, INTRODUCTION, The November December 2003 issue of California Fleet News Spectrum Consultants.
2003 featured an article about the training and certification program of the Virginia Department. of Transportation s VDOT Equipment Section VDOT is the third largest DOT in the country. and owns and maintains 57 000 miles of roads and the corresponding infrastructure the article. reported Further, It accomplishes its mission We keep Virginia moving with over 30 000 items of equipment. that range from simple weedeaters to large graders and dozers and it includes everything in. between The estimated replacement value of this inventory is 534M and VDOT protects and. maintains this investment that contains over 10 000 items of rolling stock with 83 equipment. maintenance and repair facilities located strategically around the state p 1. In VDOT parlance the term rental equipment signifies one of the methods VDOT. employs to allocate the capital cost of its equipment among the offices that use it On VDOT s. books the Equipment Section of the Asset Management Division owns the equipment and. assesses the office that uses the equipment a fixed rental amount per hour of operation Most. large towed or self propelled machines fall into the category of rental equipment. In 1999 the Equipment Section requested a study of its replace repair criteria The State. Equipment Engineer and Assistant State Equipment Engineer believed that the criteria the. Equipment Section used to identify a piece of equipment as a candidate for replacement were. overdue for a review They hoped that a statistical analysis of the available equipment data. would provide the basis for a more sophisticated set of replacement criteria As the replacement. cost of the VDOT equipment fleet is estimated at over half a billion dollars to improve the return. on the equipment budget by just a fraction of a percent would provide meaningful savings for the. Commonwealth of Virginia, To this end a research team from the Virginia Transportation Research Council VTRC. was asked to conduct the requested study The State Equipment Engineer the Assistant State. Equipment Engineer VDOT s Culpeper District Equipment Engineer and the Fredericksburg. District Equipment Engineer formed a panel to inform and oversee the work of the research. BACKGROUND LIFE CYCLE COST PRINCIPLES, Elements of Cost and Benefit. Over the life of a piece of equipment in service the owner and the operator who may or. may not be identical make a variety of outlays The owner pays the purchase price plus any. costs of delivery and preparation for service before the equipment enters service Once the. piece is put into service its use entails ongoing outlays for replacement parts labor fuel and. lubricants Depending on the type of equipment outlays for other elements such as tires or. hydraulic fluid may also occur When the owner disposes of the equipment he or she may. realize a resale price net of disposal costs that will offset some fraction of the costs incurred up. to that point, By way of an example a 110 horsepower rubber tired front end loader a k a a wheel. loader with a 2 cubic yard backhoe will be assigned to the Equipment Class Code 336 in. VDOT s Equipment Management System EMS more is said about the EMS later in this. report When it is acquired VDOT will record the purchase price of the machine once as an up. front cost They will record fuel purchases frequently as the machine is operated Periodically. VDOT will record charges for replacing the tires and the blade teeth as they are used up in the. course of operation including the labor and shop overhead involved According to the. maintenance schedule they will record charges for replacing lubricants hydraulic fluid and. filters including labor and shop costs If the loader should happen to break down VDOT will. record the cost of labor and parts used to restore it to operating condition VDOT will record one. time finally a negative cost entry when the machine is surplused. During its use a piece of equipment provides a stream of services or benefits The. benefits may be counted in miles of travel hours of operation days of service or some other unit. of measurement depending on the nature of the service. The wheel loader with backhoe may serve again as an example A VDOT residency or. area headquarters would use the front end to load salt or stone into a dump truck or perhaps to. clear debris from the shoulder of a highway They would use the backhoe to dig a trench or. perhaps to clear a short section of drainage ditch close to a culvert see Virginia Department of. Highways 1980 for typical uses of the equipment studied in this report The hours of use will. be recorded by VDOT, Life Cycle Cost, The historical record of costs incurred and the historical record of services obtained from.
a piece of equipment permit the calculation of the equipment s life cycle cost When the costs. incurred on each day of a machine s service life are appropriately time discounted translated. so to speak into the prices of the current year they may be summed When the units of service. obtained on each day are time discounted they may likewise be summed For example at a 5. rate of discount one unit of service obtained in 2004 would be counted equivalent to 1 1 05 4. 0 8227 units of service obtained in 2000 The quotient of the discounted costs and the. discounted benefits is a measure of the equipment s life cycle cost measured in dollars per unit. of service e g hours used or miles driven Minimization of the life cycle cost is the key to. getting the most out of the equipment budget, The life cycle cost of an owned piece of equipment charted as a function of time tends. to have a U shape i e the cost per unit of service declines during the early years of operation. bottoms out and then begins to rise One component of unit cost the average fixed cost is equal. to the price divided by the number of units of service be they hours of operation miles of travel. or months of ownership it declines at a steadily decreasing rate The other component of unit. cost the average variable cost is equal to the cumulative lifetime costs of operation. maintenance and repairs plus depreciation in the sense of a reduction in the equipment s resale. value after a possible initial decline it levels off and then inclines at a steadily increasing rate. The total average cost per unit of services obtained will decline initially as the up front cost of. purchase is distributed over a larger number of units of service but beyond some point the. average cost per unit of services will begin to rise as the parts labor and fuel expenses required. to keep the piece running creep upward, Figure 1 plots average total cost versus number of units of service for an idealized piece. of equipment The average total cost curve has the typical U shape The separate fixed and. variable average cost components also appear with their typical shapes Figure 1 also shows the. marginal cost curve Marginal cost is the incremental cost of obtaining one more unit of service. In the early years of operation when additional use incurs a cost per unit of service smaller than. the lifetime average to date additional operation brings the lifetime average cost lower In the. later years of operation when additional use incurs a cost per unit of service greater than the. lifetime average to date additional operation brings the lifetime average cost higher. Figure 1 Cost Relationships Postulated for Typical Piece of Equipment. Because expenditures on operation and maintenance and repairs happen in lumps and. because the amount and timing of these expenditures are sometimes subject to chance the. average cost chart for a genuine piece of equipment is less smooth than indicated in Figure 1 A. real cost chart will contain little roller coaster ups and downs that the idealized chart does not. contain Weissmann et al 2003 provide an example, Application of Life Cycle Cost Principles to Preventive Maintenance. The typical maintenance regime includes scheduled outlays on labor and parts. Unscheduled maintenance is generally more costly than scheduled maintenance and scheduled. preventive maintenance can keep the probability of an unplanned failure at a low level For this. reason a maintenance regime under which only equipment that has become inoperable receives. outlays on labor and parts is theoretically conceivable but is unlikely to minimize the life cycle. cost of equipment operations, The labor parts and fuel expenses that are needed to keep a piece of equipment in. service may be characterized as stochastic processes quantities that evolve over time in a pattern. that is partly predictable and partly random These needed expenses advance incrementally as. the equipment is used They may also jump abruptly when the piece breaks down The true. future cost of operation maintenance and repairs cannot be known with certainty The. expected or average expense per unit of service may be estimated however and the probability. of a breakdown may be quantified, Application of Life Cycle Cost Principles to the Replacement Decision.
The optimal equipment replacement strategy generally speaking is to keep and operate a. piece of equipment as long as the expected marginal cost of operating it is less than or equal to. the expected average total cost of a new piece over its lifetime Expressed mathematically this. strategy is MCold E ATCnew where Mcold is the marginal cost per unit of service of the. existing machine and E ATCnew is the average lifetime cost per unit of service expected from a. new machine Any alternative equipment replacement strategy would result in a higher cost. In a static environment where the price and quality of each new generation of equipment. are unchanging and the costs of the labor parts fuel and lubricants required to maintain and. operate the equipment are also unchanging the cost curves for every piece of a given type of. equipment would retain their shape from one generation to the next The point in a machine s. service life at which its marginal cost of operation equals the lifetime average cost of a new. machine happens to be the point at which the machine s lifetime average cost is at a minimum. At that point the owner would sell the piece and buy an identical replacement piece which he or. she would also proceed to use up to the point of minimum average total cost Figure 2 illustrates. the application of the equipment replacement criterion in an environment of unchanging unit. costs applying the replacement criterion MCold E ATCnew amounts simply to minimizing the. lifetime average total cost of each piece the owner operator of a piece would keep it until he or. she had logged the number of units of service at which the average total cost reached its. Figure 2 Application of Equipment Replacement Criterion in Environment of Stable Costs. In a dynamic environment where the price and quality of each new generation of equipment. evolve over time and the costs of the labor parts fuel and lubricants required to maintain and. operate the equipment also evolve over time the cost curves for equipment of any given type. change over time too The replacement criterion cannot be defined simply in terms of the. FINAL REPORT THE REPLACE REPAIR DECISION FOR HEAVY EQUIPMENT James S Gillespie Senior Research Scientist Adam S Hyde Research Associate Virginia Transportation Research Council A Cooperative Organization Sponsored Jointly by the Virginia Department of Transportation and the University of Virginia In Cooperation with the U S Department of Transportation Federal Highway Administration

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