What is Dynamic (changing) Life Cycle Machine Costing?
Ten years ago in 2000, we began a study of how contractors were costing the Owning and Operating Cost of their heavy equipment. We evaluated many costing systems, some were home brew others were developed by others. When someone develops a system, it is often for their purposes, this means that it may not necessarily be for your purposes.
We looked at a wide variety of costing systems. A few of the systems we reviewed were:
The CAT engineers that designed the system did not have a powerful computer sitting on their desktop like you do today. The CAT O & O Cost system has remained basically unchanged except of some minor updates though 2001. Much of what made the CAT system good was mysteriously deleted in 2001. The user was instructed to talk to their dealer about repair cost.
This in itself, is not a bad idea. You do need the help of a good dealer to cost machinery. However, if you have a mixed fleet, good luck. If you want to do your own repair and maintenance, good luck, as maintenance contracts can be purchased for low time and aged machines (Although some dealers will take your fleet as is.)
We looked at a wide variety of costing systems. A few of the systems we reviewed were:
- The Caterpillar Method (over approx. 40 years)
- Many other manufacturers' systems
- Federal Agencies like The U.S. Army Corps of Engineers
- State Agencies Like California DOT
- Published Costing Books
- Internet based costing Services
- Agricultural Machine costing programs
- Printed books back to the 1930's
- Aircraft costing studies
The CAT engineers that designed the system did not have a powerful computer sitting on their desktop like you do today. The CAT O & O Cost system has remained basically unchanged except of some minor updates though 2001. Much of what made the CAT system good was mysteriously deleted in 2001. The user was instructed to talk to their dealer about repair cost.
This in itself, is not a bad idea. You do need the help of a good dealer to cost machinery. However, if you have a mixed fleet, good luck. If you want to do your own repair and maintenance, good luck, as maintenance contracts can be purchased for low time and aged machines (Although some dealers will take your fleet as is.)
I do not want you to think that CAT was entirely self-serving by the deletion of this data. I believe that it had a lot to do with the fact that old system was a manual system and this made the repair cost data difficult to prove. In one market they were too high and in another too low. Dealers complained. To matters worse, competitors would use these numbers against CAT! If I faced this situation, I might have made the same decision that CAT did.
As you get into machine costing keep in mind that some manufacturers may believe that it is not in their best interest spend the time and money to collect costing data you need. Also, to open their books to you, may cost them sales and scare off customers, (if they knew the real cost of machinery) and expose them to competitors who do not calculate the same way they count. Fear is a great motivator.
Back to some history. We began to develop a heavy equipment costing system. Initially, we tried working with spreadsheets but quickly found that they would not do what was necessary. Yes, spreadsheets could cost part of a machine's cost but they just will not provide the whole picture. They just are not suited for the job. Why do think people buy millions of Accounting software packages form QuickBooks etc.? If spreadsheets are not suited for good accounting why would you think they are good for machine costing? We found out that they just will not provide the speed, flexibility, variability, reporting and error elimination that is necessary for costing, when you have more than one or two machines to cost.. It takes a sophisticated database with a simple to use custom interface.
I know a lot of people use spreadsheets. I do not criticize anyone for trying to cost with a spreadsheet. This is where companies often start but also quickly learn the weaknesses of spreadsheets. They are certainly better then pricing your equipment by matching a local rental house. (Your cost is your cost, a rental house may price based on their cost. Their cost has nothing to do with you.). The big problem with spreadsheets is that they are not designed to easily provide the variability needed in Dynamic Life Cycle Costing.
If I could categorize what made the original CAT system good was the focus on what today we call Dynamic (changing) Life Cycle Owing and Operating Cost. I don't want to focus too much on spreadsheets but as soon as you use one for costing, you loose the "Dynamic" part of costing. Costing one machine, for one work type and geology is one thing. Costing a mixed group of machines, is entirely another thing.
We have a free basic costing system at www,DecisiveCost.com
You can also visit our group on Facebook called Heavy Equipment Best Owning and Operating Practices.
As you get into machine costing keep in mind that some manufacturers may believe that it is not in their best interest spend the time and money to collect costing data you need. Also, to open their books to you, may cost them sales and scare off customers, (if they knew the real cost of machinery) and expose them to competitors who do not calculate the same way they count. Fear is a great motivator.
Back to some history. We began to develop a heavy equipment costing system. Initially, we tried working with spreadsheets but quickly found that they would not do what was necessary. Yes, spreadsheets could cost part of a machine's cost but they just will not provide the whole picture. They just are not suited for the job. Why do think people buy millions of Accounting software packages form QuickBooks etc.? If spreadsheets are not suited for good accounting why would you think they are good for machine costing? We found out that they just will not provide the speed, flexibility, variability, reporting and error elimination that is necessary for costing, when you have more than one or two machines to cost.. It takes a sophisticated database with a simple to use custom interface.
I know a lot of people use spreadsheets. I do not criticize anyone for trying to cost with a spreadsheet. This is where companies often start but also quickly learn the weaknesses of spreadsheets. They are certainly better then pricing your equipment by matching a local rental house. (Your cost is your cost, a rental house may price based on their cost. Their cost has nothing to do with you.). The big problem with spreadsheets is that they are not designed to easily provide the variability needed in Dynamic Life Cycle Costing.
If I could categorize what made the original CAT system good was the focus on what today we call Dynamic (changing) Life Cycle Owing and Operating Cost. I don't want to focus too much on spreadsheets but as soon as you use one for costing, you loose the "Dynamic" part of costing. Costing one machine, for one work type and geology is one thing. Costing a mixed group of machines, is entirely another thing.
We have a free basic costing system at www,DecisiveCost.com
You can also visit our group on Facebook called Heavy Equipment Best Owning and Operating Practices.
1 comment:
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