Many construction and engineering companies are so focused on winning projects that they overlook the importance of managing plant and equipment cost-effectively. With sector margins tight, it’s a dangerous oversight. Chris Knight, Global Industry Director for Construction and Engineering at IFS, unpacks the issues, and considers how an effective enterprise asset management solution can help.
According to Statista, the global construction equipment rental market was worth 118 billion U.S. dollars in 2021, and is forecast to reach 180 billion U.S. dollars by 2027.
It’s not hard to see why. For construction companies, the cost savings and flexibility available through renting or leasing equipment for the required time on projects versus the high capital cost of buying, owning and maintaining construction equipment are compelling. With rental agreements contractors can access whatever they need without incurring high depreciation costs, maintenance obligations and insurance expenses. In the event of an economic downturn, or if circumstances change, the equipment can simply be returned.
The range of plant and equipment typically rented or leased during construction projects is diverse, including scaffolding and work platforms, cranes and crane lorries, earthmovers and excavators, bulldozers and graders. Companies will typically also rent or lease smaller equipment commonly needed on sites such as pumps, generators, demolition tools, compactors, electrical transfer boxes and more. The rental costs for heavy plant items like excavators may be scrutinized, but the combined cost of smaller items over the project often may not. In reality, both can significantly impact the bottom line.
Protecting pressured margins
Whilst renting machinery and plant assets is financially attractive, unless used effectively, they also represent a significant hidden cost. Any idle, under-utilized or unavailable equipment that is not paying its way represents a hidden direct overhead contractors can ill afford. With average 2021 profit margins in the construction sector as low as 3.9 per cent (UK), 4.6 per cent (North America) and 6.1 per cent (Continental Europe)1 cost control is top of the agenda. And whilst a construction business may have a management information system tracking materials and labor, does it have the same visibility and financial tracking of performance across rented assets and plant?
Clearly, asset fleets require continual management to ensure optimum maintenance and performance. They also need to be available when and where required, manned by correctly skilled operators, and operated to maximum efficiency to ensure project deadlines are met.
Estimating asset resources
The danger for main contractors during the estimating phase of a project is failing to accurately quantify and plan for the asset resources that will be required. As a result, all too often a project will be over-resourced at the outset. Without asset planning, for every bulldozer that is hired for a year, the risk that it will be sitting unused for several days or even weeks increases, with the attendant unnecessary cost. At the same time, the organization needs to know where hired equipment is deployed, and that it is fully operational – not damaged, missing or stolen.
In the same vein, plant hire companies are also exposed. They need to know what assets are available to rent or lease from the fleet; they need to ensure their equipment is correctly maintained when out in the field to avoid breakdowns; they need to know every asset’s location at any time; and they need to know its condition, including any damage, when returned at the end of the contract.
Managing the asset lifecycle
IFS has long recognized the construction sector’s need to manage and optimize both owned and rented assets effectively. In fact, with a single cloud-enabled platform, we’ve developed a complete lifecycle solution for both asset owners and asset users.
Delivering capabilities including asset planning and implementation, asset operations and maintenance, and asset performance management, IFS Enterprise Asset Management (EAM), part of IFS Cloud, offers a single version of the truth across the business. Unlike other software vendors, IFS supports every facet of the asset lifecycle, reducing the cost of managing assets and asset information, whilst also providing enterprise-class ERP capabilities and full lifecycle service management. Mapping and ESRI ArcGIS integration mean owners and users can ensure assets or component parts are available where and when they are needed for maximum production.
Asset data, contracts, costs, and best practices are unified company wide, with access at-a-glance to business intelligence dashboards, in-depth reports, and visualization of analytics.
As the construction market becomes ever more saturated, and some global economies contract, organizations must leverage information to secure competitive advantage. By providing access to a clear, company-wide view of asset usage and availability, IFS EAM helps contractors make informed decisions at the outset to increase asset utilization, improve site productivity and increase overall profit margins. For asset owners, our IoT enabled solution enables ongoing asset health monitoring in real-time to inform predictive maintenance, preempting costly failures and unplanned downtime and enable planning for decommissioning.
To find out more about asset management in construction, download the IFS Plant & Equipment Management executive summary.