Nary a week goes by without a local news report about the cost of a bridge exceeding its estimate or an infrastructure project being relet due to lack of interest. What we’re seeing is the promise of the Infrastructure Investment and Jobs Act running headlong into the pressures of inflation.
As a major portion of any construction project cost, equipment costs have come under greater scrutiny from managers of the organizations that use machines to generate profit. Pressures from above to manage costs meet with the inflationary pressure from below at the desk of the equipment manager. Not only must they manage their departments, but they must also increasingly manage expectations above.
Mike Vorster, although retired, has not stopped thinking about fleet asset management. In a recent conversation, he suggested that today’s inflationary times—as well as ongoing supply challenges—demand a narrowing of focus. His premise: Costs are defined by performance.
Three indicators for equipment performance
Measuring and communicating three leading indicators of performance will keep costs in line:
- Utilization measures how much time a machine is literally at work producing profit for the organization. If it is low, the organization is not recovering the fixed costs of ownership such as depreciation.
- Reliability measures the dependability of the machine; it is available to do the work required when it’s required. If reliability is bad, operating costs such as repair parts and labor will be high and field production will be low.
- Finally, age measures how machines are being consumed in doing the work. If a machine is beyond its optimum ownership period, costs will continue to escalate and field production will be low.
A proactive focus on these three indicators, according to Vorster, will hone a fleet manager’s awareness of costs and, more importantly, quickly lead to better decisions.
It’s been 40 years since Vorster began training equipment managers through conferences, consulting, and these pages. To fully implement his suggestion, though, managers must understand the financial concepts behind it. We highly recommend Volume 2 of his book, “Construction Equipment Economics,” available at www.CEMPCentral.com.
