Should RAM Construction Company Buy Or Rent Suction Excavators For Underground Metro-Rail Essay?

What is the Mechanical Engineering ?

For a construction company, buying equipment is better than taking on rent. A Saudi-based company RAM Contracting has expertise in construction, development of residential and commercial projects ("RAM Contracting - Construction, Engineering Company Riyadh, Saudi Arabia", 2016). The company wants to expand its working area, so taken up a government project of developing an underground metro-rail (Auctioneers, 2014). The technical department has come up with a demand of particular equipment ‘Suction Excavator’. The team decides to rent the equipment from a well-known construction equipment company. The report covers the points that clarify why it is better to make the purchase of twenty Excavators rather than taking twenty-four excavators on hire basis. Studies show that the purchase of equipment by a company is much more beneficial for it.  It is a one-time investment and proves to be an asset for the company in the coming future. Though a huge amount of capital will be required to make the purchase, it is going to come back to the company in the form of profits. All the points are discussed in detail in the given report (Edwards & Holt, 2010).

The construction team of RAM Construction Company of Riyadh has kept a requirement of suction excavators for the construction of the underground metro-rail project. To find out what is better renting or buying of equipment few necessary points was considered.

1. Current Financial Situation- the obvious factor is that the company has the financial stability to make the purchases. Buying the heavy equipment like suction excavators requires huge capital, but renting which seems a small expense cumulatively becomes a large amount. Financial support can be taken in the form of a loan or used equipment in good condition can also be purchased (Kim & Lee, 2015).
2. Cost Estimation- The estimate of the cost of equipment renting and buying is another factor that was considered. There are many expenses like insurance, maintenance, other such fees that are needed to be paid if the company owns the equipment, but if the equipment is rented then also all these expenses are given by the company because they will be added to the rent of the equipment.
3. The length of the project- the project taken up by the company is for approximately two years, and a company is looking for more such projects in future. In the long run, the purchased equipment will prove to be more beneficial as they can be used in the future projects also which will reduce their expenses (Kim, Ha, Kang, Kim, Park, & Park, 2013).
4. Equipment availability- owning equipment will never face a problem of non-availability of the equipment. In renting, there is no surety of the availability of the equipment when required that will not only waste the expensive time of labour but increase the cost of the project.
5. Inventory control- if the equipment is purchased then it will give flexibility to the project. If the project is for three months but gets extended for another two months, there will be no issues with availability of equipment. One can always sell the equipment once the work gets completed and earn its money back (Lindsay, 2015).

A table is included here that help in determining the better option in terms of costing:-

The purchases of the equipment need to be done immediately as the starting part of the project include the use of suction excavators to dig the ground for the underground metro-rail projects. If the equipment is purchased, then the work could be started within a week of the purchases and scheduling the duties.

The requirement of twenty suction excavators is given by the department. It the starting only five suction excavators will be required as the work will be starting in a smaller area. As the area will increase the requirement of the suction excavators will also increase. After a month’s work another ten suction excavators will be required and after fifteen days all the suction excavators will be required to complete the job (Mahajan & Rajput, 2013).

The suction excavators if purchased then they will be of the conditions that the company requires for the job. Twenty purchased suction excavators can handle the work of twenty-four rented suction excavators. The cost of hiring the driver for the excavators will also be less than renting. Suction Excavators are good for the projects as they help in creating a hole in the ground with the help of air or water. Due to this technique, the earth gets loosen and the risk of damaging the underground utility reduce to the minimum (RAM Contracting - Construction, Engineering Company Riyadh, Saudi Arabia, 2016).

Scheduling

AtlasCopco Company from Germany has been selected for the purchasing of the suction excavators. The company is giving twenty suction excavators at a price negotiated by the purchase department. They will be bearing the transportation cost of the equipment till it reaches Saudi Arabia and the rest will be bear by the company. They will be supplying five suction excavators within five days of order and the rest of the fifteen excavators after twenty days (Rezazadeh Azar, & McCabe, 2012).

The purchased excavators can be used in two shifts of day and night, which will get the first leg of work done within twenty days. The second leg of work will be completed in the next month as the covering area is very large. The last leg will again take another month for completion (Smith, 2015).

The result will be evaluated with the completion of the targeted work in a particular period. For example, if the target is set to use ten suction excavators and dig twenty kilometres of ground in two days, the result will be evaluated after two days, and how much area got dug.

The estimated expenses will be compared with the actual expenses that will help in measuring the result of the decision taken (Tapio & Lindman, 2007).

Purchase of Suction Excavators is feasible as follows: -

• The equipment will be available all the time.
• No hidden expenses
• Cost effective
• Act as an asset for the company
• The company can sell the equipment after the completion of the project and resale value can be earned (Suction Excavator Solutions | Suction Excavator Solutions – Providing the safest solution for all your excavation needs, 2016).

The following are the budget details:-

Suction Excavator cost                                   $ 24,800

Required suction excavators                           20 x 24,800 = $4, 96,000

Transportation cost                                         $ 10,000

Insurance amount                                            20 x $ 500 = $10,000

Total Amount                                                  $ 5, 16,000

In the construction world, tools are as good as a man. The most important tool on a construction job site is the construction equipment. This equipment works for ten men in one-tenth of the time taken by a man. For achieving success in the construction business, a company should have adequate and appropriate equipment available at a moment notice. A company with capital should always purchase its equipment, as in the long run the equipment will turn into profits, which rented equipment will never give. Purchasing the equipment will have no hidden expenses where as when paying rent a company pays all the expenses plus charges for using the machine. As RAM Construction Company is looking forward to more such projects and then the purchased equipment will be very cost effective in the future projects (RAM Contracting - Construction, Engineering Company Riyadh, Saudi Arabia, 2016).

Conclusion

RAM Construction Company of Riyadh is expanding its business by taking an underground Metro-Rail project. The company requires suction excavators for the project. The report discusses why purchasing of the equipment is better than taking on rent. With the given details, the report summarizes the reasons and justification for making the purchase of the excavators for the company. The company is going to gain a lot of benefits from the purchase of the suction excavators. So the report concluded in favour of making the purchase of the suction excavators.

References

Auctioneers, R. (2014). When to buy or rent heavy equipment – five factors to consider. | Ritchie Bros. Auctioneers. Ritchie Bros. Auctioneers.

Edwards, D. & Holt, G. (2010). Case study analysis of risk from using excavators as ‘cranes’.Automation In Construction, 19(2), 127-133.

Heavy Equipment Lifting Rental Companies in Saudi Arabia. (2016). Aaacgulf.net.

Kim, N. & Lee, D. (2015). Interaction Analysis between Construction Business Indicators and Business Performance Indicators of Specialty Contractors providing Labor and Small Sized Equipment.Journal Of The Korea Institute Of Building Construction, 15(1), 65-71.

Kim, Y., Ha, J., Kang, H., Kim, P., Park, J., & Park, F. (2013). Dynamically optimal trajectories for earthmoving excavators. Automation In Construction, 35, 568-578.

Lindsay,. (2015). Is it Better to Lease or Buy Your Construction Equipment? | Construction Marketing Blog. Constructionmarketingassociation.org.

Mahajan, D. & Rajput, B. (2013). IT Model to Calculate Required Equipment for Excavation Work in Construction Projects. Journal Of Construction Engineering And Project Management, 3(4), 1-4.

RAM Contracting - Construction, Engineering Company Riyadh, Saudi Arabia. (2016). Ramcc.com. Retrieved 11 December 2016, from https://www.ramcc.com/

Rezazadeh Azar, E. & McCabe, B. (2012). Part based model and spatial–temporal reasoning to recognize hydraulic excavators in construction images and videos. Automation In Construction, 24, 194-202.

Smith, D. (2015). Renting Vs. Buying. Managing Your Business.

Suction Excavator Solutions | Suction Excavator Solutions – Providing the safest solution for all your excavation needs.. (2016). Suctionexcavatorsolutions.co.uk. Retrieved 11 December 2016, from https://www.suctionexcavatorsolutions.co.uk/

Tapio Lindman, M. (2007). Remarks on the quality of the construction of business concepts. European Business Review, 19(3), 196-215.