Playing Baseball by Watching the Scoreboard is Wrong!

Playing Baseball by Watching the Scoreboard is Wrong! 
 
You may wonder what this has to do with managing heavy equipment. Let me explain. But first it is important to understand why “playing baseball by watching the scoreboard. is so wrong. The scoreboard is important but it only tells you what has happened in the past. It will not tell you anything about the future.

I love Vince Lombardi's quotation "We didn't lose the game; we just ran out of time." Lombardi is commenting on the insignificance of the scoreboard. (although the clock is important)

If your focus is on what has happened in the past, you do not have your eye on the ball. You need to know where the ball is right now and where it needs to be or where it will likely be. This is where winners focus their attention.

Now what does this have to do with machinery ownership. A common misconception is that that “If you only could keep track of your expense of using your machine, you would know your cost of that machine.” We call this Historic Costing. While Historic Cost is important, it will never tell you your real cost. If you base your price on your Historic Cost, you are almost sure to loose money and at the same time lose projects that you could otherwise win!

Consider your accounting system as the scoreboard, or the way the scoreboard numbers are calculated. Accounting, by definition is a recap of the past, never the future. If you believe the past will always forecast the future, then we need to tell the players of our favorite team to give up if they are behind by even one point. Do you see why focusing on the past can be bad?

If you really want to know your cost per hour or mile or kilometer (for trucks), then you need to take into account both the past and the future. Many of your costs may be coming down the (haul) road. An elevating scraper uses tires that cost $6,500.00 each. A dozer has a track system that may cost up to $21,000.00 (depending on model). Neither of these expenses are incurred when they need to be replaced. The expense is incurred with every hour the machine runs.

To make this more difficult, the tire may last 500 to 3500 hours. The track may last 800 to 4500 hours. If you think that just because you got xxxx hours the for the last replacement, get ready to be disappointed. Every job is different. If you or your estimator is not looking for these job site differences, you will never see differences. Individual work packages or tasks take a different percentage of the component life. Geology changes. I l live in Florida. We have a lot of sand. But all sand is not the same. Different geology will cost you more or less. So do you still really believe that your accounting system will take into account these huge differences in cost?

If not Historic Cost, what really works? Dynamic (changing) Life Cycle Costing will work for you.

Very few dollars of your cost goes for frequent expenses like oil and filter changes. Even these cost can change for very many reasons. Even if they did not change, this would still only likely be $2.50 to $4.50 an hour. You need to count this but there are many more expensive things to worry about costing. For more information, contact me or see www.DecisiveCost.com

Dan Rooks