Which Cost Factors Impact Hourly Charge Rates the Most?

In this sensitivity analysis, three heavy equipment models were selected in order to measure the sensitivity of total hourly costs to each of the cost factors listed in the EquipmentWatch Internal Charge Rate Calculator.

Key Takeaways for Decision Makers

EQUIPMENT MANAGER/ESTIMATOR: Using the EquipmentWatch Internal Charge Rate Calculator to take a deeper dive into the scope of impact of individual cost factors can help you highlight any pain points that may be keeping your company or organization from achieving competitive internal charge rates.

 

 

 

Performing a sensitivity analysis through EquipmentWatch’s Internal Charge Rate Calculator allows us to know and understand the most impactful cost factors on hourly charge rates. As an example, the following three popular models were chosen for this exercise.

Model Subtype
Bobcat T190 Compact Track Loader
Caterpillar D6T XL Standard Crawler Dozer
Volvo EC340D Crawler Mounted Hydraulic Excavator



Using the Calculator, each cost factor for each model was adjusted by 10% in order to measure their respective impacts on hourly ownership and operating costs and the results for each model were recorded. It’s worth mentioning that the online interface of the Internal Charge Rate Calculator allows the user the convenience of seeing the impacts of any cost factor changes on ownership and operating cost rates in real time, as shown in the following image.

2016-07-27 09_22_55-Bobcat T190 Ownership Operating Costs _ Compact Track Loaders

After noting the impacts of each cost factor for all three models, the top five drivers of total hourly costs for owning and operating heavy equipment become apparent. Below, we illustrate the average impacts on total hourly costs for the three models from adjusting each of the top 5 cost factors by +/- 10%:


Internal Charge Rate Calculator Cost Factors Bobcat T190 Caterpillar D6T XL Volvo EC340D
Annual Use Hours +/- 5.30% +/- 5.60% +/- 4.90%
Original Price +/- 5.10% +/- 5.30% +/- 4.20%
Mechanics Wage +/- 2.40% +/- 1.70% +/- 2.50%
Economic Life Hours +/- 2.00% +/- 1.80% +/- 1.80%
Gasoline Cost per Gallon +/- 1.70% +/- 1.50% +/- 2.20%


As illustrated in the previous table, Annual Use Hours and Original Price stand out as having the biggest impact on total costs.

Annual Use Hours impacts both hourly ownership and operating costs significantly – resulting in an overall impact on total hourly costs of +/- 5.30% on average for the Bobcat T190 when usage is increased by 10%, while a 10-percent increase in Annual Use Hours for the CAT D6T XL and the Volvo EC340D yielded changes in hourly cost rates of +/- 5.60% and +/- 4.90% respectively. Original Price also has significant impacts on both hourly ownership and operating costs and comprises the second most impactful cost factor according to the EquipmentWatch Internal Charge Rate Calculator.

Another cost factor worth mentioning from the EquipmentWatch Internal Charge Rate Calculator that has a significant impact on total hourly costs is Mechanics Wage. While it may not appear as a specific line item on a company’s balance sheet or budget, Mechanics Wage directly impacts overhaul and field repair costs (the guy repairing and maintaining your equipment must get paid!).

All other cost factors outside of the top five when adjusted +/- 10% had average impacts of +/- 0.66% on total hourly costs on average. However it’s important to note that although a small change in a particular cost factor may not yield a significant change in total costs, it does not mean that it should be dismissed as not being important. For example a ten-percent change in fuel costs may not have a significant impact on total hourly costs, but it may still have a huge impact on hourly operating costs

Using the EquipmentWatch Internal Charge Rate Calculator to take a closer look at the scope of impact of individual cost factors can help highlight any pain points that may be keeping your company or organization from achieving competitive internal charge rates.

Interested in learning more about Cost Recovery?  Visit EquipmentWatch.com.