Disclosure: The following content was written and sponsored by Tenna.
Planning your budget for this year? Consider the ways your equipment has cost you in 2020.
With each new year comes the time for contractors to budget and plan for anticipated expenses for the upcoming 12 months and allocate funds you want and need to put towards strategic initiatives that align with your business plans and benefit your company.
As a construction business owner, you know that owning, operating, and maintaining an equipment fleet is one of the top two biggest capital investments. As such, and given the nature of our fast-moving business, you’ve likely experienced cost overruns and exceeded budgets in various areas related to your equipment. Fortunately, construction technology today can help contractors better manage their equipment and their many related costs to reduce expenses and protect the bottom line.
Naturally, you’re probably wondering how shelling out more money for a new technology will save you in the long run.
Equipment management systems shed light on your true equipment costs through continuous data capture, tracking, logging, and monitoring. All this information translates to total visibility at all times, timely notification when attention is needed for quick decision making, and automated insights you wouldn’t otherwise get by managing your equipment manually or disjointedly. Having this knowledge and insight directly impacts your decision-making around equipment-related expenses and planning.
What your Equipment Could be Costing you
When deciding whether an equipment management system is worth your investment, it’s important to review what your equipment could be costing you today. Your findings may surprise you.
Examples of equipment costs you may have encountered last year based on our experience in construction (and the experience of our contractor customers) include:
- Breakdowns and repairs
- Idle Time
- Lost/Stolen assets
We did some research with one of our customers and standard industry average cost data and found that by eliminating just one of each of these expenses, you could save nearly $310,000.
That’s a big financial impact! The reality, due to the nature of the construction business, is that these things normally happen on a continual basis across operations throughout the year. And realizing we’re stating the obvious here - the actual cost impact is much larger.
But these costs can easily (and in many cases, effortlessly) be avoided!
In most cases, the cost of one emergency repair or time-sensitive issue is equivalent to the rough annual cost of an equipment management technology. If you can eliminate even one emergency repair per year, you will find that your equipment management platform will have paid for itself.
Equipment fleet management systems can prevent the above costly circumstances from happening not just once, but many times over, benefiting you by recouping some of the costs you’ve already incurred while generating a high return on your investment.
Total Cost of Ownership
Getting a handle on these costs can help reduce your total cost of ownership for the equipment fleet you own, use and maintain to complete your jobs.
All contractors calculate their total cost of ownership (TCO) a bit differently, but we did a study with one of our customers to see what this looked like for a heavy civil contractor with a fleet worth $15M. Based on a variety of factors, we found that their average TCO for the three-year period studied turned out to be $8.7M, which is more than half the value of their entire fleet itself.
We dug deeper to see how an equipment management system could impact key areas of their equipment management processes that directly impact their TCO. We observed how certain equipment management software insights and features directly tie to your TCO to highlight the multiple ways equipment management technology provides value to a contractor that owns and operates a construction fleet.
Our areas of focus included:
- Knowing what you own in your fleet and where everything is: Although some contractors strategically choose to rent rather than own necessary equipment, for the companies that do own and maintain the bulk of the assets needed for building their projects, knowing what you have, where it is and when it is available will help you to better utilize and recognize an ROI on your existing assets while minimizing your unnecessary rental costs. Features like Geofences, Reservations and Scheduling, an Asset Library, and Sites help with this.
- Monitoring how often machines are utilized: Knowing your accurate utilization can help you better estimate utilization benchmarks and thresholds for other machines and new machines you add to your fleet to help maximize their useful life and earn you an ROI based on your ownership and operating costs. Knowing your true utilization helps you maintain the size of your fleet appropriate to your operational needs. Construction equipment management features like Utilization, Reservation Tools, and the Asset Library help here.
- Properly maintaining your machines: Staying on top of your preventive maintenance can drastically improve your equipment functionality and extend the useful life of each machine while minimizing excessive repair costs which weigh down your TCO. Maintenance features and functionality such as automated Preventative Maintenance and Work Orders are key.
- Scheduling the assets you need when you need them: Knowing what you have available and maximizing the utilization of your owned assets impacts excessive rental costs and helps you optimally use the assets you are already carrying on your balance sheet. Reservations and Scheduling Tools, Geofences and Sites, and Utilization features make this possible almost effortlessly.
- Monitoring your fuel consumption. Whatever the cause of it, curbing your idling will cut your ownership costs. Leveraging telematics data to get a handle on your idling behaviors and curbing fuel theft can have a tremendous impact on your TCO. Fuel and Maintenance features can break this down for you and provide actionable insights for areas of improvement.
- Knowing how much your assets are earning. Having your cost and earnings information automated and available can help you identify when costs are being exceeded or find opportunities for cost-cutting or earnings to balance out your TCO. Asset Revenue, Job Costing, and other finance tools can provide this visibility.
- Inspecting your equipment before use for safe performance. Lowering your risk of malfunction and safety issues while lowering your insurance premiums is a double cost-benefit for your TCO. Features and functionality such as Safety & Compliance, Inspections, Driver Scorecards, and Safety cameras bring a ton of value.
While you likely calculate your TCO in your own unique way, it’s likely that you consider some of the above factors when studying your ownership and operating costs. An equipment management system can improve efficiencies in all these areas which translates to several cost savings for you.
What you may or may not know is that there is an added bonus which many contractors are not taking full advantage of adopting qualifying construction technology into your business can also benefit you with federal Research and Development tax credits (between 6 and 12%) with proper planning.
In addition, related to number seven above, because equipment management tools are becoming more widely used, insurance providers, are taking note and offering incentives and premium discounts for contractors with documented equipment safety programs. Driver scorecards, inspection, and compliance features, and dashcam functionality offered in equipment management software can benefit you in this area, and also serves to expedite insurance claims with documented evidence of incident or accident events. These provide extra savings overtime and fewer headaches.
Takeaways for 2021 Planning
Whether you are large or small, construction business owners will benefit from an equipment management system in 2021 and beyond to save on typical construction costs, reduce your total cost of ownership, and improve your bottom line in the coming year. When analyzing your budget for this year, consider the ways your costs were impacted in 2020 and what construction technology solutions are available that you can budget for to help avoid unnecessary expenses in the future.
Think of it this way - for the price of a dozer bottom carriage and for less than the cost of a field engineer, you could make measurable improvements in your equipment fleet management that give you the insights and answers you need about your business, improve the daily productivity of your field teams, improve your project margins, and generate a high return on the investment of both the equipment management system itself as well as the equipment you are managing in it.
It’s unlikely that your equipment fleet will become less demanding this year, so it’s worthwhile to research fleet management solutions for your business as we transition into Q1. Eliminating waste and maximizing efficiencies in 2021 will provide opportunities to maximize profits and expand your budgets in 2022.