Heavy Equipment Cost Per Hour: Owning and Operating Cost

A machine's hourly cost is three numbers added together: what it costs to own, what it costs to run, and what the operator costs. Own + operate + operator is the rate you price a job on or use to compare two machines.

The Caterpillar Performance Handbook works one example for a track-type tractor. Owning cost comes to $22.02 per hour, operating cost to $19.99, and the operator to $25.00. The total is $67.01 per hour. The prices in that example are old, so copy the structure and replace the inputs with your own.

Worked example

This uses the track-type tractor in the Caterpillar Performance Handbook. The handbook states the total hourly cost ($67.01), total operating cost ($19.99), operator wage ($25.00 including fringe), planned maintenance ($2.30), repair ($6.12) and the ripper and dozer wear items. Owning cost is not stated in the excerpt, so step 1 backs it out by subtraction. We then price a job needing 120 machine-hours. The 120 hours is an assumption for illustration. Use your own estimate.

Answer: The handbook's tractor costs $67.01 per operating hour all in ($22.02 owning, $19.99 operating, $25.00 operator), or $42.01 without the operator. A 120-hour job carries $8,041.20 of machine cost before overhead and profit.

Owning cost: what the machine charges you for sitting there

Part of the hourly rate exists whether or not the machine turns a wheel. The SME Mining Engineering Handbook lays out the pieces on its ownership and operating cost form (Figure 10.4-1, SME Mining Engineering Handbook, 3rd edition, 10.4.2.2.8 Cost Estimation, p. 934). Start with the sales price, then add freight, insurance to site, any import duties and assembly. That subtotal is your capital cost.

Next, spread it over the life of the machine. Divide the depreciable amount by total lifetime hours, which is years of operation times hours per year. The result is depreciation per hour.

Interest, insurance and taxes are charged on the average investment, not the full price. The form uses this factor:

• Average investment = price x (years + 1) / (2 x years)
• For a 5 year life that factor is (5 + 1) / (2 x 5) = 0.6
• Multiply the average investment by the combined rate, then divide by hours per year

Hours per year quietly ruins more hourly rates than any other input. Owning cost accrues per year, not per hour worked. If a machine works half the hours you planned, every worked hour carries double the owning cost. Use the hours you can actually bill, not the hours on the brochure.

Operating cost lines that move with the work

Operating cost covers everything consumed by running the machine, except the operator. The SME form lists fuel or electric power, preventive maintenance supplies and filters, undercarriage, tires, and repairs. The Caterpillar form adds a line for special items such as ground-engaging tools.

Wear parts need their own arithmetic, because their life is measured in use hours, not machine hours. The tractor example shows how. The ripper runs about 20% of the time and tips last 30 hours in use, so tips are replaced every 150 hours of tractor operation. Three tips at $35.00 each work out to $0.70 per hour. Shank protectors add $0.37 and cutting edges add $0.25, for $1.32 per hour in total (Caterpillar Performance Handbook, edition 50, Example I: Track-Type Tractor, p. 20).

That is small next to repairs. The handbook calls repairs and component lives normally the largest single item in operating costs. They include all parts and direct labor chargeable to the machine, except operator wages.

Repair cost on one machine climbs in steps, because big rebuilds arrive in spurts. The handbook suggests averaging. Early years then over-collect to pay for the expensive later years (Caterpillar Performance Handbook, edition 50, 11 - Repair Costs, p. 16). For large nonmobile excavation and haulage equipment, the SME Mining Reference Handbook gives annual maintenance and repair of 5% to 15% of installed cost as a general range (SME Mining Reference Handbook, 2nd edition, CHAPTER 12: Excavation, Loading, and Material Transport, p. 298). Treat that as a sanity check, not a rate.

Why one machine has different rates on different jobs

The tractor's undercarriage line shows how conditions move cost. The handbook takes a basic factor of 6.6 and multiplies it by the sum of three condition multipliers: impact (0.2), abrasiveness (0.2) and the third (0.3). That gives 6.6 x 0.7 = $4.62 per hour. Change the ground from the one in the example and the multipliers change, and so does the rate.

Fuel, tires and repairs behave the same way. The handbook says so plainly: costs must be obtained locally, because what looks like a high application to one owner looks medium to another (Caterpillar Performance Handbook, edition 50, ESTIMATING OWNING & OPERATING COSTS, p. 1).

Watch one definition. In that section "hour" means clock or operating hours, not service meter units. If your hour meter runs differently from the clock, convert before you multiply a rate by meter readings.

Turning the rate into a bid or a buy decision

To price a job, multiply the hourly rate by the hours the job needs. In the worked example, 120 hours at $67.01 gives $8,041.20. Production decides those hours. Loader and truck hours come from cycle time and tonnes per hour, which is what the shovel productivity and truck cycle time calculators are for. Cost per hour is only half of cost per tonne. Production is the other half.

To compare machines, divide each one's all-in hourly cost by its production per hour. A machine that is cheaper per hour can lose on cost per tonne if it moves less. The SME form ends the same way, with a line for cost per metric ton at the bottom.

Drilling works the same way. A rig's hourly cost becomes a cost per metre once you count bits, steel and downtime. Drilling cost per meter walks through that conversion.

Replacing the book rate with your own records

The handbook is candid about its own numbers. It calls the result an estimate that can change radically from project to project, and says that for the greatest accuracy the hourly cost from actual on-the-job cost records should be used (Caterpillar Performance Handbook, edition 50, Example II: Wheel Loader, p. 21).

So the book rate is a starting point. To reach a rate you trust, you need hours, fuel, parts and labor tied to each machine and each job. That is a coding problem before it is a math problem. If equipment hours and parts land on the wrong job, the rate will be wrong however carefully you built it. Construction cost codes covers how to set codes so daily reports roll up into unit cost. Once they do, a weekly job cost report shows where the actual hourly cost drifted from the estimate.

Then run the result through the job cost and margin calculator to see what the corrected rate does to the margin on the contract.

Where hourly rates usually go wrong

Four mistakes recur:

• Planning on too many hours per year. This spreads owning cost too thin and understates the rate.
• Leaving out the operator's fringe. The handbook says to include fringe benefits as well as direct wages to give a true picture of operator cost.
• Using one repair number for the life of the machine. Either use an averaged figure, as the handbook suggests, or step the rate up as the machine ages.
• Skipping wear parts. At $1.32 per hour on a tractor, they are small. On a rock-heavy job with a short tip life, they are not.

Downtime leaks money too. A machine that waits on a repair still accrues owning cost. Equipment defects that affect safety must be corrected under MSHA's surface mine rules, so a machine tagged out is a machine not earning. The rule is 30 CFR 56.14100. Log those hours as delays, not as working time, or your hourly rate will look better than it is.

A rate you can defend

Build the rate from its parts and write down each input: price, life, hours per year, fuel price, wage. When a bid is questioned, you can point to the line that moved. When a job finishes, compare the actual hourly cost with the estimate and adjust the next one. After a few jobs, the rate is your own figure, not a book figure.

Run your own numbers

The job cost and margin calculator does this arithmetic and shows its working, so you don't have to redo it by hand each time. The rest of the set is on the mining calculators page.

Common questions

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