formula for allocating crane insurance costs

[Clarence Crow]

Hello

I'm a consultant estimator in the construction industry.
one of the companies I'm currently working for has just purchased a
large crane and it's Annual Insurance Premium for this is in the order
of $30,000.00.

The Owner/Manager has conservatively based his Utilisation for Rental
Recovery on Projects at 50%.

Some Projects run for Terms of , say 12 weeks, 26 weeks and up to a
full year, say, 50 working weeks.

He has a baseline "Bare & Dry" Rental Amount of $10,000.00 per week.
To this , we need to add calculated Fuel, Operator, Servicing and
Insurance Costs..

So I need a formula or function to ensure he recovers the full
Insurance Premium Cost in any Year but not to exceed the full cost.

I have used this as a starter, but not sure it's the best approach:

=IF(Term<26,Term/52*30000*2,30000)

Any better ideas?


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-- Regards

-- Clarence Crow

 

[Harlan Grove]

I'm a consultant estimator in the construction industry.
one of the companies I'm currently working for has just purchased a
large crane and it's Annual Insurance Premium for this is in the order
of $30,000.00.

The Owner/Manager has conservatively based his Utilisation for Rental
Recovery on Projects at 50%. ...
So I need a formula or function to ensure he recovers the full
Insurance Premium Cost in any Year but not to exceed the full cost.

I have used this as a starter, but not sure it's the best approach:

=IF(Term<26,Term/52*30000*2,30000)

Any better ideas?

This begs the question what should happen if the crane winds up being rented for
three separate 3-month terms. Do the first two renters pay the entire insurance
cost and the third renter get a discount?

There's only one good way to allocate operating expenses - come up with a
realistic estimate of the number of weeks the during the year the crane would be
rented, divide the operating expenses by that estimate, and add the result to
the base weekly equipment cost. If the crane winds up rented for more than this
number of weeks, there's extra profit (just as there is in any industry with
fixed costs allocated proportionately based on a fortuitously low a priori
estimate of units sold). If the crane is rented for fewer weeks than expected,
fixed costs aren't covered in full, which hits profits. That's plain vanila
business risk.

The danger from getting too fancy with allocating fixed costs is that you could
wind up driving business to the competition. Also, there are risks involved in
being too conservative in the estimate of how many weeks the crane would be
rented. If your client uses an estimate of 26 weeks but his competitors use 30
weeks, their costs per week and thus their price will be lower, and they'd be
more likely to have their cranes rented for 30 weeks than your client would for
26 weeks.

 

[Clarence Crow]

...

This begs the question what should happen if the crane winds up being rented for
three separate 3-month terms. Do the first two renters pay the entire insurance
cost and the third renter get a discount?

There's only one good way to allocate operating expenses - come up with a
realistic estimate of the number of weeks the during the year the crane would be
rented, divide the operating expenses by that estimate, and add the result to
the base weekly equipment cost. If the crane winds up rented for more than this
number of weeks, there's extra profit (just as there is in any industry with
fixed costs allocated proportionately based on a fortuitously low a priori
estimate of units sold). If the crane is rented for fewer weeks than expected,
fixed costs aren't covered in full, which hits profits. That's plain vanila
business risk.

The danger from getting too fancy with allocating fixed costs is that you could
wind up driving business to the competition. Also, there are risks involved in
being too conservative in the estimate of how many weeks the crane would be
rented. If your client uses an estimate of 26 weeks but his competitors use 30
weeks, their costs per week and thus their price will be lower, and they'd be
more likely to have their cranes rented for 30 weeks than your client would for
26 weeks.

Exactly!
I already have an Insurance Calculator built in to an "Industry
Standard" External Crane Hire Spreadsheet in our Workbook, and had
presented the scenario to him from there.
It works on a low percentage of (the Insured Value, plus 6 month's
Loss of Hire from Consequential Damage) * Term/52.
When I removed the Cost of Stamp Duty from the calculation, he agreed
that my method of recovering the Premium was acceptable.

Thanks again for your input.

-- Please reply to this ng as:
-- my email adress is programmed to deny access to all without passwords.

-- Regards

-- Clarence Crow