Equipment Management through Operational Failure Costs

Abstract

This paper defines operational failure costs (OFCs), presents a method for their development, and examines their usefulness as a means of equipment management. It considers variables related to the projected use of the equipment in the context of the production team and the construction site as a whole as well as the importance of each piece of equipment. In addition, it takes into account, the point of view of the company in light of management objectives and the number of projects it undertakes concurrently. Furthermore, this paper examines the magnitude and importance of costs caused by equipment failure; demonstrates the importance of equipment assignment; examines the relative equipment importance within a project; avoids the concept of unit cost that is considered a weakness in linear programming approaches; examines the use of OFC as a decision‐support tool for equipment purchase, retirement, replacement, rent, and lease; and evaluates detailed operations plans as well as contingency plans. Finally, it presents an application of the method in a “typical” earthmoving project using SLAM II as the simulation software.