A branch of construction management which deals with selection of alternative of heavy construction equipment by mainly two methods : 1.Sensitivity analysis , 2. Breakeven Analysis. This methods also discuss sensitivity of variables such as Incoming, outgoing, service life, etc.

1. CONSTRUCTION EQUIPMENT
MANAGEMENT
Prepared By :
Prof. Chintan S. Raichura
Civil Engineering Department
DIET, Rajkot Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

2. Advanced Concept in Economic Analysis :
Engineering economic analysis is a science of applying economic
criteria to select the best out of a set of alternate engineering design
or proposals.
It provides the procedure for the cost analysis of project alternatives
for the purpose of finding the best cost or the most economical
alternatives of the project.
Advanced method of economic analysis are :
1) Sensitivity analysis
2) Breakeven analysis
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

3.  Sensitivity Analysis :
 While comparing alternatives assumptions are made in regards to
various variables such as initial cost, receipts, disbursements,
interest rate, life of assets, salvage value, etc. in previous study.
 We assume that value of this variables were accurate and constant.
 However, in real life situations value of such variables are likely to
change in most of the occasions.
For Example :
 The Life of the assets can be longer or shorter than our
estimate.
 The rate of interest may be higher or lower then the assumed
value. Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

4. The changes in the variable value may or may not lead to reversal of
our earlier decision.
If even a slight change in one variable leads to a reversal of decision
– from say acceptance of one alternative to its rejection – we say
that the variable is highly sensitive.
In contrast with that, even if a large change in variable does not
change the decision we say that the variable is insensitive.
Sensitivity analysis categorize variables in highly sensitive, less
sensitive, and insensitive variable categories.
By this classification we can focus on highly sensitive variables for
batter management of project.
It is a non probabilistic technique.
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

5. Different forms of sensitivity analysis :
Sensitivity
analysis
Single alternative
Change in one
variable at a time
Change in two
variable at a time
Change in more
than two variable
at a time
More than one
alternative
Change in one
variable at a time
Change in two
variable at a time
Change in more
than two variable
at a time
Spider web diagram
Family of curves or isoquants
Scenario analysis
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

6. Sensitivity analysis can be performed with any method of
evaluation of alternatives such as present worth analysis, annual
cost and worth analysis or internal rate of return method of
analysis.
It can be performed at different stage of project such as pre-tax
cash flow or post-tax cash flow. However it is preferable to
perform with post tax cash flow.
Sensitivity analysis results are shown in the form of graphs.
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

7. Sensitivity Graph
The value of incomings at which the net present worth is zero is
known as breakeven point. Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

8. The slope of the sensitivity line indicates the sensitivity of a
particular variable.
The steeper the slope, the more sensitive the variable is, and vice
versa.
We can see from the graph that variables such as incomings and
interest rates are highly sensitive variables whereas outgoings and
salvage value are less sensitive.
We can also take two variables at same time in sensitive study.
For two variables we can show results in following methods :
1) Family of curves
2) Isoquants
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

9. Family of curves :
In this method one variable is fixed while another variable is
varied.
For example service life(N) is fixed and net present worth(NPW)
is computed for different values of incomings R.
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

10. Isoquants :
In this method an indifference line is plotted by varying two
different variables, say service life (N) and incomings (R).
For plotting indifference line, points (N1 R1), (N2 R2) are plotted
such that at this point net present worth is zero.
The indifference line separates acceptance zone and rejection zone.
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

11. Scenario analysis :
For involving more than two variables at a time in sensitivity
analysis, scenario analysis is most suitable method.
In scenario analysis following scenarios are generated :
 Best scenario
 Normal scenario
 Worst scenario
 The objective of this method is to get feel of what happens under
the most favorable and the most adverse configurations of key
variables.
 Corresponding to all this scenario NPW is calculated for ease of
taking batter decision.Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

12. Scenario analysis is superior method than sensitivity analysis
because it considers more than two variables at same time.
However it has following limitations :
i) It assumes that there are a few well delineated scenarios,
which may not be true in many cases.
ii) There is a huge requirement of data to perform scenario
analysis.
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

13. Breakeven Analysis :
 In this method more emphasis is given on finding breakeven
point at which reversal of decision takes place.
 In other words to know the minimum returns of equipment or
minimum amount of production required to recover money
invested is called breakeven analysis.
 The minimum quantity at which loss is avoided is called break
even point.
 The break even analysis is also called cost-volume profit
analysis.
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

14. Selection of lifting equipment according to breakeven analysis.
Hand Hoist Mechanical Hoist
Total cost versus number of components lifted are plotted for
both of this equipment.
Two lines meeting at a point is called breakeven point.
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

15. Cost versus No. of components graph for hand hoist and
mechanical hoist
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

16. Assumptions of breakeven analysis :
1. All cost and volumes are known.
2. Cost-volume relationship are linear.
3. All output can be sold.
 Advantages of breakeven analysis :
1. It is simple and easy to visualize.
2. It focuses on profitability
3. It uses both algebraic and graphical display
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

17.  Limitations of breakeven analysis :
1. Charts are only true within limits they are based on.
2. Indirect cost may change at different levels of output.
3. Variables may not give a straight line chart.
4. Total revenue curve may band due to discounts.
5. Managerial decisions may alter the direct and indirect
cost.
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot

18. “it would be well if engineering were less generally
thought of, and even defined, as the art of constructing. In certain
important sense it is rather the art of not constructing; or, to define
it rudely but not ineptly, it is the are of doing that well with one
dollar which any bungler can do with two….”
- By Wellington
Copyright : Prof. Chintan Raichura, Darshan Institute of
Technology, Rajkot