The discounted cost model and application to acquisition and utilization policies of construction equipment

The objective of this research is to develop a model to solve for optimal policies of construction-equipment acquisition and utilization. The scope of the research is the economic aspects of equipment policy. The problem of acquisition and utilization policies is to determine methods of acquisition, and replacement timings of equipment in the equipment chain. The major shortcoming of the methods found in literature, replacement theories and capital budgeting techniques, is the separate examination of the two policies which are in fact interrelated and should be decided concurrently. In this research, a criterion for optimal equipment policy in construction is selected. The Discounted Cost Model is developed to simulate equipment utilization costs by various acquisition methods, and to determine their present values. The model takes into consideration tax law provisions, availability of cost data, flexibility and practicality in applications. A program for determining utilization costs is given. The research demonstrates the use of the Discounted Cost Model to provide information for equipment policy decisions, which are exercised in two levels. In the single equipment level, this is done by use of the Discounted Cost Model to analyze the response of utilization costs to model variables and parameters. In the equipment chain level, the Labeling Method based on dynamic programming approach, is developed to determine the optimal acquisition sequence and replacement timings of equipment in the chain. Potential savings of the method over existing concepts are presented. The application of this research is intended to serve the users of construction equipment, principally contractors and governmental agencies, who regularly make decisions on equipment policy. To serve this goal, the practicality and flexibility of the developed model are emphasized.