Unknown Element of Owning Costs—Impact of Residual Value

Abstract

Residual value is a largely unknown element within the cost calculations for construction equipment that equipment managers are preparing. Traditional estimation methods fall short of capturing its actual nature over time in detail. In this paper we consider the current state of knowledge on residual value and on other cost elements for used heavy construction equipment as implemented in a spreadsheet tool for owning and operating cost calculation. The potential influence of the factor residual value on the total owning costs, and ultimately on total hourly rates, is examined for several different types of heavy equipment. Representative examples of cost calculations are used to perform a sensitivity analysis. Intuitive contour diagrams of the total hourly cost are introduced. The need for an extended examination of residual value of construction equipment is demonstrated using statistical tests. Residual value is found to have a statistically significant contribution to the total hourly cost.