Vol 2 - No 1

The Decision to Invest in Machine Control: A Leap of Faith or Just a Matter of Doing the Math?

Written by Paul Hahn

Created on Monday, 30 January 2012 19:46

A 476Kb PDF of this article as it appeared in the magazine—complete with images—is available by clicking HERE

Before making a capital investment, a thorough investigation of all the cost and benefits is prudent. Determining how such a purchase will affect your productivity and your profitability is paramount. One way to arrive at an informed decision is to perform a Return on Investment (ROI) analysis. A ROI analysis (also called a cost-benefits analysis or rate of return) is one of several approaches to building a financial business case. It is a way to compare the magnitude, and timing, of expected gains to the investment costs.

A thorough ROI analysis considers many factors that are tailored to your specific applications, company and project requirements. A brief list of factors follows:
• Acquisition price
• Useful life of the equipment
• Labor cost savings  Equipment rental cost savings
• Days on site time savings
• Material cost savings
• Equipment utilization savings
• Quality improvements
• Productivity enhancements
• Anticipated outside surveying costs
• Financial issues (the cost of capitol engaged)
• Costs associated with training requirements and ramp-up time
• 3D model preparation costs
• Reduced fuel and equipment maintenance costs
• Reduction or elimination of re-work and the associated costs

It appears to be a long list, but most of this information already exists in the records of your past jobs and the numbers your estimators are using. What has it cost you to move x cubic yards of material? What has it cost for x number of linear feet of roadway? How much are you paying grade checkers, etc? What are the costs of re-work on a typical job and have you ever experienced material overruns due to inaccurate grading operations? Machine control eliminates many of these costs due to its more accurate positioning technology and real-time guidance.

There should also be a consideration of how much money can be saved when staking and re-staking costs are reduced or eliminated. Even if you have a full time survey crew on-site, you should consider the cost of downtime waiting for the surveyors to arrive and re-stake lost points. Each one of these factors will contribute to a realization of how an investment in machine control will impact your bottom-line.

After the data for your specific applications and company is collected, and a few assumptions are made, it's just crunching a few numbers.

In future articles, we will delve into each one of these areas in greater detail and help you decide if adopting new technology brings you a big bang for your buck.

Most people talk about ROI in terms of a breakeven date or time period. At the end of an analysis, it is often stated that x investment will pay for itself in x amount of time. That can be very important as new equipment purchases must often be charged to a specific job. But this is short-sighted. If, for example, a $100,000 investment pays for itself in twelve months; what will be the increased profitability for the company over the following twelve months (and the next twelve months after that)?

Another consideration, although harder to quantify, is the impact such a purchase will make on your competitive standing. What technologies are your competitors employing? Do the technologies make make their bids more competitive? Do they make them more profitable at the same time? Are they winning more jobs? With fewer bids being fought for by more and more contractors; can the adaptation of machine control technology win you more jobs? If not everyone in your area is on-board with machine control, could it become a competitive advantage for your company?

Reports from contractors already using machine control substantiate the manufacturers' claims that productivity and accuracy are, in fact, being increased. These increases are quite dramatic, in many cases. Material and labor costs are being reduced and dollars are being added to the bottom line. Penalties for late completion are being avoided; bonuses for early completion are being realized. The need for some machines and personnel are being eliminated. But how will machine control impact your company and your projects? This can be determined through a thorough ROI analysis.

In future articles, we will highlight some of the success stories and bring you application-specific examples.

With all new equipment or technology comes an adaptation learning curve. We will discuss this issue, as well, and provide tips for minimizing the impact on your production.

I hope you stay tuned and visit the Machine Control Online website often, and look forward to each new edition of Machine Control Magazine. We will reveal the opportunities and gotcha's (to be avoided) and help you make an informed decision.

Paul Hahn has more than 30 years of experience, and has held senior management positions at Carl Zeiss, Nikon, Geotronics, Spectra Precision, and Trimble, and is now a consultant.

A 476Kb PDF of this article as it appeared in the magazine—complete with images—is available by clicking HERE

 

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