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A short class with Sarah and her students. The other ways are under More.
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Let's start by calculating downtime costs. The downtime cost per hour is defined as 3% of the equipment cost. What is the equipment cost, and how do we find the hourly downtime cost?
The equipment cost is 900 rupees per hour. So, 3% of that is 27 rupees.
Exactly! Now, if the machine operates for 2000 hours a year, what would the yearly downtime cost be?
That's 27 rupees times 2000 hours, which equals 54,000 rupees.
Great! Remember, we can use the acronym 'DCP' for 'Downtime Cost Per year' which helps us recall how to calculate this annually.
That's helpful! What happens in the second year?
In the second year, the downtime percentage increases to 6%. So, we calculate it the same way...
Now that we understand yearly costs, let’s talk about cumulative downtime costs. Why do we need to add yearly costs together?
To see the total effect over multiple years.
Correct! If we add 54,000 and 108,000 for the first two years, what do we get?
That's 162,000 rupees.
Well done! This 'Cumulative Total', akin to a savings account, shows how costs build over time.
How do we represent that cumulative usage?
Excellent question! By dividing cumulative costs by total hours used, we can find the cumulative cost per hour. This leads us to assess productivity.
Let’s shift our focus to lost productivity. As downtime occurs, what adjustments do we have to make?
We need to spend more to bring productivity back up.
Exactly! We’re recalibrating costs to account for delays. If we consider adjustments, how might this impact our calculations?
We need to include those added expenses, right?
Yes! Creating a 'Productivity Adjusted Cumulative Cost' reflects a more accurate picture.
How do we calculate that?
By dividing the cumulative cost by the productivity factor. Let’s calculate that together!
Now let’s discuss obsolescence costs. What happens to older machines?
They produce less and have more maintenance costs!
Correct! We calculate obsolescence costs based on a percentage of the equipment cost as well. What would it be if the obsolescence factor is 0.05?
That would be 45 rupees per hour for obsolescence.
Great! As we assess older machines over time, remember that repair costs and outdated performance impact costs significantly.
So, keeping old machines can be expensive in the long run?
Exactly! That's why we need to consider economic life when deciding on replacements.
The financial impact when machines are not operating.
Keeping a total tally of all costs over years to understand the full financial burden.
Integrating loss in productivity into cost calculations.
Recognizing the inefficient performance as machinery ages that leads to increased expenses.
If the cost of the equipment is 900 rupees per hour, a 3% downtime cost would be 27 rupees, leading to a significant annual total based on operating hours.
As the machine's downtime percentage increases from 3% to 6%, the per hour downtime cost accordingly changes from 27 to 54 rupees, resulting in escalating annual costs.
For downtimes, don't delay, calculate costs day by day.
Imagine a factory where machines grow old. Every year, they cost more due to break downs, showing the need for timely replacements.
Remember D.C.O. for downtime costs, cumulative costs, and obsolescence costs.
DCP - Downtime Cost per year, which helps minimize loss.
Term
What is the downtime cost per hour?
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Term
What is the cumulative downtime cost for two years?
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The financial loss attributed to the machine not being operational, usually calculated per hour.
The total accumulated downtime costs over a specified period.
Factors incorporated into cost calculations that account for lost productivity during downtime.
Costs associated with retaining old machinery that can result in reduced productivity and increased maintenance costs.
The section covers how to calculate the downtime costs associated with equipment, including both hourly and yearly assessments, and introduces concepts such as cumulative costs and productivity adjustments.
In this section, downtime cost calculations are detailed, clarifying how costs accumulate over time based on operational hours and percentage of downtime. The impact of productivity on costs and obsolescence costs are discussed as necessary factors in understanding total operational expenses.
In this section, we delve into the calculation of downtime costs associated with machinery or equipment. We start with determining the hourly downtime cost, which is defined as a percentage of the equipment cost—in this case, 3% of an hourly equipment cost of 900 rupees, leading to a downtime cost of 27 rupees per hour. Over 2000 operating hours in a year, this results in an annual downtime cost of 54,000 rupees for the first year.
For the second year, as the downtime percentage increases to 6%, the cost rises to 54 rupees per hour and totals 108,000 rupees for that year. Cumulative downtime costs are calculated by adding yearly costs, prompting the need to track cumulative performance to inform future decisions.
A critical point discussed is the consideration of lost productivity, which can elevate downtime costs. As machines require maintenance, additional costs incur in operational efforts to restore original productivity levels, leading to the concept of productivity-adjusted cumulative downtime costs. We find that understanding obsolescence is equally important, as an aging machine incurs higher maintenance and reduced productivity costs, advocating for timely updates with newer models to optimize operational efficiency.