Planning Equipment Investment for UK Builders

1 Introduction
2 Related articles on Designing Buildings

[edit] Introduction

For construction businesses, investment in plant and equipment often begins with the requirements of a particular project. However, machinery purchased for one contract can influence the business long after that work has been completed. A concrete mixer, pump or other item of construction plant may become a productive asset used across multiple projects, or it may remain underused once its original purpose has ended.

Planning equipment investment therefore requires consideration of future workloads, project types, equipment utilisation, hire and subcontracting costs, and available capital. The objective is not simply to own more machinery, but to develop an equipment strategy that supports construction activities without creating unnecessary financial pressure.

[edit] Developing an equipment strategy

[edit] Looking beyond the immediate project

A construction project can create an immediate requirement for equipment, but a purchase decision should not be based exclusively on the needs of that project. Before committing capital, contractors should consider whether the equipment is likely to remain useful after the current work is completed.

For example, a contractor undertaking a single housing development may have a temporary requirement for concrete production or placement equipment. Purchasing machinery solely for that project may be difficult to justify if similar work is unlikely to recur. However, if the contractor expects to undertake foundations, extensions, agricultural buildings, small infrastructure works or further developments, the same equipment may become a reusable business asset.

Equipment investment should therefore be considered in relation to the expected pipeline of work rather than a single contract.

[edit] Ownership, hire and subcontracting

Owning equipment is only one way of obtaining construction capacity. Contractors can also hire machinery, use leasing or other financing arrangements, subcontract specialist services, or combine owned equipment with external resources.

Ownership can provide greater control over equipment availability and deployment. However, it also introduces costs and responsibilities, including capital expenditure or financing, maintenance, repairs, insurance, storage, inspections, operator training and periods of inactivity.

Hiring can provide access to equipment without the long-term commitment of ownership and may be particularly appropriate where requirements are short-term or uncertain. Subcontracting may be suitable for specialist activities that require equipment and expertise that the contractor does not need regularly.

A mixed approach may therefore be appropriate, with frequently used equipment owned or leased and specialist or infrequently required machinery obtained through hire or subcontracting.

[edit] Assessing the financial case for equipment ownership

[edit] Frequency of use and utilisation

The financial case for equipment ownership changes as utilisation increases. A machine that is used regularly can spread its ownership and operating costs across a larger number of projects. The same machine may represent a high cost per project if it spends long periods idle.

Utilisation can be assessed in different ways, depending on the type of equipment and the purpose of the analysis. Measures may include operating hours compared with available hours, working days compared with planned availability, or the proportion of time for which equipment is assigned to productive work.

High utilisation does not necessarily guarantee profitability. Operating costs, maintenance requirements, transport costs and the value of alternative uses for capital must also be considered. However, consistently low utilisation may indicate that ownership is not the most economical option.

Builders should estimate likely annual operating hours or working days using realistic forecasts rather than assuming that future work will automatically provide sufficient demand.

[edit] Whole-life costs

The purchase price of equipment is only one element of its overall cost. An investment assessment should consider the whole-life costs of ownership.

These may include:

purchase price or financing costs;
delivery and commissioning;
depreciation;
maintenance and repairs;
replacement parts;
inspections and compliance;
insurance;
fuel or energy;
storage and security;
transport between sites;
operator training and employment costs; and
expected residual value.

The opportunity cost of capital should also be considered. Money invested in plant and equipment cannot be used for other purposes, such as labour, materials, project mobilisation or business development.

For hired equipment, relevant costs may include hire charges, delivery and collection, fuel or energy, insurance, operator costs, extended hire periods and any charges associated with damage or cleaning.

Comparisons should be based on the anticipated period of use and realistic utilisation rather than purchase or hire price alone.

[edit] Repeated demand and project history

Completed projects can provide useful information for future investment decisions. Contractors can review how often equipment has been hired, the cost of specialist subcontracting, equipment-related delays and the frequency with which particular plant is required.

If a business repeatedly hires the same type of equipment and regularly experiences availability or scheduling difficulties, ownership may become more attractive. Conversely, equipment required only for isolated projects may remain better suited to hire or subcontracting.

Historical information should be considered alongside future workloads, as previous patterns of activity may not continue if the business changes its market, services or project types.

[edit] Selecting equipment for future projects

[edit] Versatility and suitability

The versatility of equipment can be as important as its performance on the current project. Equipment that can be used across several types of construction activity may provide greater opportunities for utilisation.

However, versatility should not be considered in isolation. Equipment must also be suitable for the physical and operational conditions in which it will be used. Relevant considerations can include:

site access and available space;
ground conditions and gradients;
required production or operating capacity;
transport requirements;
availability of power, fuel or water;
operator competence;
maintenance arrangements;
health and safety requirements; and
applicable environmental and regulatory requirements.

Nominal equipment capacity should not be confused with actual productivity. Actual output may be affected by site conditions, operator experience, material availability, travel distances, maintenance requirements and delays between operations.

[edit] Concrete production and placing equipment

Concrete-related equipment can illustrate the importance of matching investment to recurring demand.

A self-loading mixer may combine loading, mixing, transport and discharge functions, depending on its design. It may be useful where concrete is required regularly in relatively small or intermittent quantities, where work is spread across a large site, or where access to ready-mixed concrete is limited.

However, ownership also requires consideration of material supply, water availability, cleaning, maintenance, operator competence and realistic production requirements. A contractor should assess whether the equipment can produce and deliver concrete efficiently for the types and volumes of work expected.

Concrete pumps are more specialised and may be required where concrete must be placed over significant distances or in locations with difficult access. Ownership may be appropriate where pumping is required frequently enough to support regular utilisation. Where demand is occasional, hiring equipment or using a specialist concrete pumping contractor may provide better value.

[edit] Managing capital and operational risk

Rapid acquisition of equipment can create financial pressure even where the business is growing. A contractor may own more machinery but have less working capital available for labour, materials, project mobilisation and unexpected costs.

A more sustainable approach may be to increase equipment ownership as recurring demand becomes clearer and utilisation becomes more predictable. Investment decisions should also consider the risks associated with equipment downtime, breakdowns, theft, changing technology and fluctuations in future workloads.

Construction plant management should include systems for recording equipment availability, operating costs, maintenance and allocation to projects. Linking plant costs to individual projects can help contractors understand the full cost of using equipment and compare ownership with alternative arrangements.

The most effective equipment strategy will vary between construction businesses. Contractors should therefore review investment decisions regularly as workloads, project types and market conditions change.