An overview on asset utilisation
With COVID-19 halting much of the upcoming construction projects and disrupting current ones, many construction companies run a lean operational model to protect their razor-thin margins. Small and medium-sized firms, which make up the majority of construction firms in Australia, prefer to take the leasing route when it comes to securing assets for their projects. As a matter of fact, 80% of all required equipment is rented over the duration of the project and represents a major expense for the contractor. When done right, this can ensure that projects are financially sound (no cost overruns) and contribute positively to the overall profit margins.
Larger companies that own constructions assets, such as trucks, heavy equipment, and machines, know that assets have a large influence on their bottom line and balance sheet. Poor management and inefficiency in this regard will be detrimental as depreciation holds a near-perpetual effect. Thus, corporates have felt the need utilise their possessions effectively, from the point of inception, to meet ROI and other metrics such as the asset utilisation ratio. Some companies even developed special frameworks (inclusive of deployment, availability, utilisation) to have a more comprehensive and detailed view on how to better assess and efficiently leverage their assets.
In this second series, we will discuss how IoT solutions can help to allocate hired equipment effectively, reduce overall owning costs, and ultimately stretch the already-slim profit margin for construction companies.
The challenge: hidden costs of under-utilised assets
Heavy machinery has traditionally been built with a focus on robustness and being sturdy enough to withstand the heavy-lifting involved in projects. With that trade-off, construction equipment lacks meaningful progress in terms of technological advancements. Not enough attention has been given to upgrading these assets with the ability to collect meaningful information about themselves and their surroundings. Low visibility is, therefore, the primary reason why bad asset allocation decisions are made.
Imagine knowing that 1 out of the 5 trucks rented for the project had a utilisation rate of 20% and was operated for only 2 hours daily over the period of the project. There is no doubt that construction managers would plan and schedule logistics very differently to potentially save on the cost of an entire truck as well as to keep project sites lean.
Theft of assets is another common occurrence in construction sites. The likeliness of assets being misappropriated and stolen are even higher for those that are underutilised, hard-to-locate and left on the sidelines until project completion. The lack of real-time visibility on the wherabouts of the assets increases this risk as project teams are too occupied with daily tasks to keep track of machinery and equipments.
For more valuable assets such as specialized equipment, this can have larger impacts. Some projects even allocate resources to safeguard high-value assets and prevent financial and productivity loses from break-ins. Even if the equipment is kept insured prior to incidents, the time incurred for asset replacement usually causes major delays in project schedules and this further increases project cost overruns. Under-utilised assets that are left idle take up valuable physical space in the project sites and might get in the way of critical work flows.
Construction companies are undoubtedly going to lose out in the long run if they stick to the traditional methods of measuring and improving asset utilisation. The ability to fully leverage project assets and make the most out of every penny spent on construction equipment will seperate the winners from the loser.
With that said, improvements in this area does not only have financial benefits but from a macro point of view, contributes to better project management (with on-time project completion), asset longevity (through timely maintenance and servicing), and overall business growth (as more accurate cost estimations can be achieved and subsequently win more bids).
How can we leverage IoT to overcome the challeges?
3 key benefits for your projects
- Efficient cost allocations of hired equipment by setting up cost centers based on geofences boundaries and maximise equipment utilisation at the defined regions.
- Reduce the risks of theft as valuable assets can be easily located through the dashboard.
- Improve asset longevity as maintenance and services can be predictively scheduled based on specific utility metrics.