A student recently asked how to cost load equipment in Primavera P6 that extends over multiple activities that may overlap. Let’s take a look.
The cost of equipment is usually charged on an hourly or monthly basis. A piece of equipment may provide support for more than one deliverable effort and these deliverable efforts may overlap or have time gaps between them. Equipment charges continue regardless of whether the equipment is in use supporting a deliverable or sitting idly.
Typically the rented equipment extends the length of the project despite downtime between deliverable efforts. The outstanding question is what is the best way to schedule this equipment usage and cost loading in the schedule?
This article demonstrates how to schedule and cost load equipment, whose usage spans multiple deliverables or Work Breakdown Structure (WBS) elements.
We have in Figure 1 our demonstration project.
This is an underground pipe installation project. This project rents a backhoe for the backhoe excavate and back fill efforts. If we simply apply the backhoe hourly rate to the backhoe excavate and back fill activities, we will significantly underestimate the budgeted cost of renting the backhoe.
The backhoe supplier does not charge the project an hourly rate solely when the backhoe is in use. The supplier charges for the full length of time the backhoe is checked out of the supplier’s inventory. So we have to expense the backhoe the total amount of time it is on the job site regardless of how much it is actually utilized.
The best way to account for the backhoe hourly rate is to define a separate backhoe activity and assign it the Level of Effort (LOE) activity type. The LOE activity type helps define activities whose time may or may not be directly involved in producing a deliverable.
Examples of LOE activities include project management and administrative efforts. In Figure 2 we have added a pipe install effort that extends the entire length of the installation effort, which includes excavation, pipe installation & inspection, and refill & paving deliverables.
Directly underneath this pipe install WBS we place our backhoe rental activity. So we rent the backhoe and have it onsite immediately prior to the backhoe excavation effort through to the final conclusion of the asphalt surface roadway effort.
Figure 3 displays our backhoe equipment resource in the resource sheet.
It has a standard rate of $50/hr. We also assign it to the non-labor resource type, which is for equipment. In Figure 4 we assign our backhoe resource to the backhoe rental LOE activity.
And our schedule logs charges against the backhoe rental for the entire duration of the pipe install effort, again, regardless of its usage. In this way the project manager can account for the total cost of the backhoe equipment rental.
LOE activities are useful for scheduling efforts that are not directly associated with the production of a deliverable. Rental equipment is included in this category. The rental equipment is charged for the entire length of time it is onsite and not simply the time it was actually helping produce a deliverable.
So we want to create a deliverable encompassing the entire duration of the backhoe rental. We place our equipment rental activity below this deliverable, make it an LOE activity type, and assign it a non-labor equipment resource. So we have a separate LOE activity to cost load our equipment rental for its duration in the project.