A Proposal for an Integrated Methodological and Scientific Approach to Cost Used Forestry Machines - IIASA PURE
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Open access Subject review
https://doi.org/10.5552/crojfe.2021.849
A Proposal for an Integrated Methodological
and Scientific Approach to Cost Used
Forestry Machines
Dalia Abbas, Fulvio Di Fulvio, Enrico Marchi, Raffaele Spinelli, Mike Schmidt,
Ted Bilek, Han-Sup Han
Abstract
This paper offers a conceptual analysis of the unaccounted-for cost of owning and operating
used machines from an operational, financial and market perspective. It is based on input from
experts and a literature review. In the scientific literature, assessing the operating cost of used
machines in forest operations is typically based on standard cost assessment methods using
costing/pricing input from similar unused machines. This is the case since there are usually
no historical data for observed used machines available to analyze. This substitute analysis is
problematic to many used and depreciated machines owners. The changing trends in forest
technology attest that old machinery do not hold to the same input cost data variables or values
of new machines. In fact, they belong to two rather competing and different markets: (used vs.
new equipment markets). With the technological, market and machinery regulations and
dynamic changes, the substitute cost analysis is not representative. Better data is required to
understand the cost of owning and operating used machines and the justification is the focal
point of this paper. The outcome of the expert and literature analysis in this paper demonstrates
that a broader understanding of the cost of a used machine is required and doable. A proposed
understanding integrates the machine's availability (performance), cost factors (financial) and
market evaluation (price), in isolation (single piece of machine) as well as in a fleet, to assess
a used machine ownership cost. The study is intended to offer forest machine operators, own-
ers, scientists, and practitioners a proposed new approach to value used machines and further
investigations and data inputs required to make used machines costing methods more relevant.
Keywords: cost assessment, risks, uncertainty, depreciated, equipment, economic machine
hours, technical machine hours
1. Introduction These standard costing methods are also used to
cost used machines, because it is expected that the
An online search into »depreciated forestry ma- lower purchase price for a used piece of equipment
chines costing method« came up repeatedly with one (i.e. lower capital investment) would even out both the
of the most cited studies in the field: Miyata 1980’s US higher repair and maintenance expected from used
Forest Service study on determining fixed and operat- machines (compared to new ones) and their general
ing costs of logging equipment, as a first return entry. lower efficiency. However, this assumption carries
Miyata 1980 and other cost assessments methods with it the understanding that all the inputs used to
(e.g. Matthews 1942, Franklin 1997, Brinker et al. 2002, cost a used machine during its operations are ad-
Ackerman et al. 2014) have costed forestry machines dressed if substituted with a new machine (Abbas et
based on their capital cost, predefined life expectancy, al. 2019). Typically, costing inputs are based on esti-
interest and insurance rates, repair and maintenance, mates of »new machinery« with no operational history
utilization rate, and labor. that replace the specific used machine being observed
Croat. j. for. eng. 42(2021)1 63D. Abbas et al. A Proposal for an Integrated Methodological and Scientific Approach to Cost Used Forestry Machines (63–75)
or operating on the ground, regardless of how long value to add the relevance of the machine to its value
it has been used. This is because a new machine is and reliability. In this study, we identify unique elements
the best available alternative estimate of the cost of a needed to help build a framework that analyzes exist-
used machine. If the machine being studied is out of ing data or datasets that need to be collected. The
production, a similar model replaces its value in the authors are currently developing a model analysis and
cost model, in its new condition, to reach a cost of op- the details of this framework. To expand the analysis,
erations value per Scheduled Machine Hour (SMH) or we offer an example of what a used machine analysis
per Productive Machine Hour (PMH). This means that would look like compared to a new machine (Fig. 1).
assumptions made with the substitute new machine The study picks up elements from existing costing
speculate no external inputs in the costing method that methods that need further clarifications and estima-
contribute to the probability of the used machine act- tions to more accurately reflect ownership cost of used
ing other than new. Because of these assumptions, machines. The aim of the paper is twofold:
depreciated machine costs in their current state are Þ provide the reader with ideas to test and inves-
rarely well estimated in financial accounting studies. tigate a new proposed framework
The caveat of using this approach is that a used Þ consider with caution new machinery costing
machine is less predictable with more unknown risks methods results of used machines published in
and uncertainties than a new machine. This is critical, the literature.
because as machines are used and depreciated, with- This paper is structured into three main sections:
out a case specific documentation of the historical op- Þ the operational section discusses specific opera-
erational details, the cost variability from one machine tional factors affecting machine performance,
to another becomes wider and more unpredictable availability and utilization and their embedded-
compared to a new machine, as well as the usability ness in machine costing methods, as well as dif-
of this data to represent the entire fleet being analyzed. ferences in emissions, compliance to regula-
Miyata (1980) and others maintained, and this contin- tions, ecological effects and the ergonomics of
ues to be the case, that a daily recording of operations new vs. used machines
is required to produce an accurate cost assessment of
Þ the financial section discusses the issue of using
the operations of the machines. Acknowledging this
new machinery costing methods to assess the
information, this study does not seek to refute the
cost of used machines. It further discusses the
value of using new machine input data in methods
risks and uncertainties attached to the financial
costing used machines, as a rule of thumb when no
cost of owning and operating used machines
better data is available. Rather, this study attempts to
refine the understanding of costing methods to better Þ the market section delves into the assessment
integrate the variability of the operational, financial criteria used in the market for pricing a used
costing and market valuation aspects as significant piece of equipment.
cost variables in costing used machines1. Finally, we discuss how the integration of all three
sections present a more accurate representation of the
This paper offers a conceptual understanding to
financial cost of owning used machines than the cur-
help better explain the value of owning a used
rently used standard new machinery costing methods.
machine(s) and how the current methods used to as-
sess costs are unrepresentative. Even though many
studies have mentioned a fallout in the new machine 2. Operational Value
costing methods analysis (e.g. Bilek 2009), very few if The operational value of a machine is based on its
any have proposed a way to better understand the availability to perform a productive task. Technical
missing components to the shortfall. Further, several functionality of ground operations is complex, and no
studies have attempted to criticize the cost assessment single assumption made that is based on historical
methods part, without accounting for the missing data related to the performance of one machine fits all
operational or market values to the operator of owning other machines cases. Unused/new machines, on the
the machines. The inputs to the value of the machine other hand, have set and fixed performance assump-
need to account for its operational history and market tions in place, based on common standards and
expected performance rating with minimal, if any, site
impacts on the machine. Unlike the case for new
1
The term »used machine« in this paper refers to all except machines, not one used machine is going to experience
new machines that are used, secondhand, resale, trade-in and/ the same working conditions as another performing
or partially/fully depreciated the similar task. Aspects, such as terrain, operator, lo-
64 Croat. j. for. eng. 42(2021)1A Proposal for an Integrated Methodological and Scientific Approach to Cost Used Forestry Machines (63–75) D. Abbas et al.
cation, and operational costs, account to a different (from a stage I to a stage V) (OJEU 2016). Similarly, in
financial burden per machine. Therefore, oversimplifi the US, starting with the federal standards of 1994,
cation of machine cost models, with the assumption until the most recent ones introduced by EPA in 2015,
that new machine capital cost and its depreciation are there has also been a lowering of limits of air pollut-
going to even out this unknown component is not very ants defined by different »tiers« (from a tier 1 to a tier
realistic. With this understanding, owners of depreci- 4) (EPA 2019). Hence, new machines cannot be com-
ated and used machines may not be particularly inter- mercialized if not adequately complying with up-to-
ested in, or find relevant, the scientific new machines date environmental restrictions. Indeed, there remains
costing methods results (Tennessee Master Logger a market for vehicles that are not necessarily compa-
Program 2016). The key operational question to con- rable to new machinery in terms of environmental
sider is: Does it matter during the operation if the op- performance. However, differences like emission stan-
erator is using a new or a used machine in terms of dards could create a disparity between the different
performance/efficiency? For example, if a used ma- levels of machine performance and compliance, which
chine with low capital cost is well maintained and is reflected in their pricing, as well as in different levels
performs with the same utilization rate as a new ma- of efficiency on lubricant use and fuel consumption.
chine, then it would be unrealistic to assume the capi- Emissions-wise, modern machines are expected to
tal cost of a new machine to cost it. Addressing this have more controlled fuel and lubricant use engines
question is one of the key purposes of this paper. to comply with regulatory concerns of carbon dioxide
A study by Holzleitner et al. (2011) found that »no emissions in the atmosphere and its contribution to
correlation was found between the amount of repair climate change. Moreover, internal combustion en-
cost and the annual utilization or the summarized uti- gines typically show a general performance degrada-
lization per year«. A possible interpretation of this tion over time, thus increasing fuel and lubricant con-
could be that it is more important how a machine is sumption. Aged engines are characterized by deposit
used and how properly it is maintained, rather than formation that may change the injector fuel flow rate
how much or how long it is used. Therefore, the rele- (DuMont et al. 2009) and the interaction with the in-
vance of using a predefined repair and maintenance cylinder flow (Wang et al. 2017). These changes result
cost, linked to an assumed fixed utilization rate for a in worsened emissions (Jiang et al. 2017, Xu et al. 2015,
new machine to explain the cost of a used machine, is Wang et al. 2014, Joedicke et al. 2012) and increased
debatable. Regular maintenance and repair may cause fuel consumption (Arters and Macduff 2000, Joedicke
interruptions in performance of a machine to meet et al. 2012). In addition, oxidation and soot in the lu-
market demands (Krivitzky and Yamamoto 2013). bricant can result in viscosity increase and the loss of
However, if a used machine is not maintained over lubricant derived fuel economy (Covitch et al. 1985).
time, there is no doubt that the accumulation of dirt, Nevertheless, additives and tools for improving the
dust and breakdowns have a toll on the machine per- performance of aged engines have been developed
formance. Therefore, there is a need for more studies and may help reduce fuel consumption and emissions
that target the role of maintenance and its relationship (Krivitzky and Yamamoto 2013, Cui et al. 2016, Aradi
with downtimes (Tabikah 2014). There are, on the et al. 2003). More investigation is required into the in-
other hand, agricultural machine models that have crease in emissions of aging engines in forest equip-
shown an increase of repair and maintenance cost ment versus modern ones.
rates over the machine lifetime (Edwards 2015), how- Ecologically, the impact of logging equipment on
ever the downtown associated with these costs re- the ground is more affected by the propulsion device,
quires further investigations. soil condition at the time of trafficking and number of
Compliance to new emission regulations is one of passes (Cambi et al. 2015). Studies are lacking the ac-
the main differences between the features of old ma- count for the age of the machine in relation to impact
chines and machines that are currently being intro- on soil, for example. However, propulsion devices are
duced to the market as new machines and models. periodically replaced or maintained, thus recovering
Most of the regulations introduced in Europe and the the condition of a new machine. Propulsion device
United States lead to more strict requirements for new maintenance may play a key role in soil compaction.
engines to comply with stricter standards of emissions The main parameter affecting soil compaction is the
for HC, NOx, CO, and PM (EPA 2002). In Europe, inflation pressure of tires that should be periodically
starting from the Directive 97/68/EC and until the checked and changed in relation to soil condition, in-
Regulation 1628/2016, there has been stricter standard dependent of machine age (Cambi et al. 2015, Marra
for engine emissions targeted by different »stages« et al. 2018). Also, the damage to regeneration and
Croat. j. for. eng. 42(2021)1 65D. Abbas et al. A Proposal for an Integrated Methodological and Scientific Approach to Cost Used Forestry Machines (63–75)
r esidual stands are affected by several factors, but the from the U.S. Forest Service online portal and is cus-
machine age has not been included in the factor list tomizable to the used machine operator and owner.
until recently (Picchio et al. 2011, Marchi et al. 2014). Bilek (2009) as such sheds light on the importance of
Ergonomically, machines have for long been ad- time value when costing between new vs. used ma-
vancing in many ways targeting reduced noises, vibra- chines. Bilek summarizes this shortage as follows:
tions and exposure to external elements using protec- »All machine rate models are based on cost averages.
tive gear (Rummer and Smith 1990). Technological They do not consider the time value of money, do not take
advancement, however, meant longer sitting time and into consideration the timing of costs, and are limited with
less physical activity for the operators (Hansson 1990). respect to costs that they incorporate. The only rate they
Improved variations in machines are recommended to calculate is pre-finance and pre-tax. Machine rate models
reduce musculo-skeletal problems through rotations do not do a good job of accounting for financing costs …
and training in work techniques. To a large degree, While the machine rate models can produce cost estimates
issues with operator health and safety are not strictly for new machines, the models are difficult to adapt for used
connected with the advancement of the machine only, equipment, which may have partially worn replaceable
but also with operator professionalism, as well as ac- parts. Machine rate models cannot do a good job of incorpo-
cidents, such as unintended activation of switches rating inflation and cannot be used to calculate the rate of
(Axelsson 1998). Indeed, the workplace has become return on investment.« (Bilek 2009)
safer when operators are sheltered from external ele- A prudent operator is expected to build a strong
ments. Therefore, new machine characteristics and old cash-flow for each machine by considering the entire
machine characteristics have different sets of unique operating system and supply chain. Indeed, mecha-
ergonomic problems. nized forest operations can be very complex to man-
To summarize this section, used and new machines age, especially when dealing with both new and old
have different repair and maintenance expectations. equipment in the same ownership system. Further, the
The referenced environment/ecology/ergonomic fac- risk and uncertainty of the operations are looked at in
tors are predominantly linked to operating conditions terms of the full operational needs of machines and
and not necessarily costing elements. From an eco- not just the isolated use of one machine. It is expected
logical and emission perspective, used and new ma- that as machine owners may own one or two pieces or
chines have different standards. The ecological impact the entire fleet; dependability of one machine on the
of machinery with different usage has not been wide- other in its sequential operations is going to vary. For
ly addressed, however, in terms of emissions, new example, the loss of one machine may render the sec-
machines are advancing their requirements to meet ond machine useless, unless the first is repaired or
tighter standards. Ergonomically, machines are ad- replaced.
vancing by providing more attention to comfort and The lifetime of the machine is usually defined by
sheltered conditions. the treasury departments’ time period for depreciation
typically used for tax purposes. In the United States,
for example, the American Appraisal Associates estab-
3. Cost Assessment, Financial Risks
lishes the »useful life« of equipment categories which
and Uncertainty the Internal Revenue Service (IRS) uses as a baseline
As this study seeks to further improve the cost as- to determine the annual write-off of the machine to the
sessment methods of used machines, it must not be owner (IRS.gov 2017). However, this is purely for tax
forgotten that current »machine rate models have a num- purposes and may not be very relevant to the true eco-
ber of problems« (Bilek 2009) and it is not just a matter nomic life and value of a machine that generates an
of using new machines to replace used machines in income to the machine owner. Further, because of the
the financial calculations of cost per productive and supply chain nature of forest products and produc-
scheduled hours (Bilek 2009). Bilek (2009), for exam- tion, the economic life of one machine cannot be seen
ple, interrogated the different new machinery costing in isolation from another in a supply system.
models available in regard to their applicability to Risks and uncertainties are the unknown future
used machines inputs. The »CHARGEOUT!« model predictions of possible unexpected machine behavior
is the outcome of his study and is specifically used in that may impact operational productivity and earn-
determining the financial feasibility of capital invest- ings from that machine. Risks of these unknown pre-
ment in equipment. He stressed the importance of dictions are attached to the chances of uncertainties
integrating the used machine cost factors beyond de- and may impact the financial cost of owning and op-
preciable life. The model is available free of charge erating a machine. Risks and uncertainties may be
66 Croat. j. for. eng. 42(2021)1A Proposal for an Integrated Methodological and Scientific Approach to Cost Used Forestry Machines (63–75) D. Abbas et al.
linked to the machine alone for a single machine own- chines in the market, the valuable consumers’ and
er or as part of the entire supply system for a fleet market feedback remain crucial.
portfolio management. For a used machine, the financial risk of paying off
Usually, the uncertainties and risks are presented the machine depreciation is lower than that of a new
by the probability of occurrence of different types of machine and maybe even be diminished. This corre-
events during the machine life. As a machine ages and lates with each working hour, where the impact of
acquires more operating hours – the probability of paying back the capital investment is generally small-
downtime could increase, as does the probability of er than that for new machines. However, the opera-
potentially higher repair costs. If we focus on utiliza- tional risk is relatively higher, given that the machine
tion, when the machine is new, the probability distri- is potentially breaking down more frequently, due to
bution surrounding the point estimate of the annual the wear and tear of its components. Under these con-
productive machine hours would be quite narrow. ditions, the financial burden on the operator in the
However, as the machine ages, there would be greater case of used machine is more approaching the opera-
uncertainty/variation surrounding the middle point tional one (running/variable costs) than depending on
estimate, as the chance of downtime due to unsched- the capital depreciation (fixed/capital costs). The bal-
uled failure and repairs would increase. At the same ance between financial expenses is tilted from one that
time, the operator and the terrain features would also is capital investment based to one that is operationally
have an impact on these probability distributions of based. Therefore, in case of used machines, optimal
events, increasing or reducing the effects of downtime time for replacement (i.e. how long an operator can
on the operational schedule. run used-machines and what is the lifetime of the ma-
The predictability of used machines carries a host chine) is a more important question to consider than
of user, region and unknown variables. Although, the traditional cost analysis methods.
there is a body of literature that explains the reduction
3.1 Proposed Costing Approach
of reliability for older machinery (e.g. Cantú et al.
for Used Machines
2017), there is also a body of literature that tends to
account for the variability of old machines and their Based on these considerations, some different ap-
lower operating costs. Sen (1962), for example, wrote proaches may be used in the financial assessment of
an essay on the usefulness of used machines. Further, used machinery compared to the »standard cost as-
as an operator gains experience with a specific piece sessment methods«, when including effects of risks
of equipment, there would be a reasonable expectation and uncertainties:
of a better understanding of its uptimes and down- Þ purchase price: should include the level of un-
times occurrences based on the operator/owner good certainty linked to accuracy of information on
knowledge of past events and manufacturing data. the history of equipment, including the occur-
The more a machine is used, the more information rence of its failures, the knowledge of the re-
could be acquired about its productivity as well as its placement of main components, past operators’
reliability. use and the working environments. It should
The availability of such information could increase also consider the effect of lowering the invest-
the operators' awareness of the performance and reli- ment risk due to possible warranties offered by
abilities of different machinery, consequently allowing the dealer. A certification or warranty can be
to better guide in the choice of most suitable machin- linked to a specific machine after its inspection
ery, as well as estimating more accurately the running and the »coverage« could be for one year for
costs involved. An example is offered by the Consum- example, depending on the machine condition
er Reports websites and magazines for automobiles; and past servicing (deere.com 2019). Further,
surveying their subscribers regarding aspects that additional costs applied to upgrade and/modify
include the reliability of their vehicles, the body, mo- parts of a used machine should be added to the
tor, and cooling systems. Similar surveys could be also total purchase price
envisaged for used logging equipment (e.g. www. Þ life expectancy: should be defined both in terms
consumerreports.org 2019). Current computerized of economic life and technical life. The econom-
machines with more machine learning opportunities ic life is described when it costs more to own the
may also help improve the understanding and record- machine than the income it generates. This time-
ing of running costs of used machines, as opposed to frame is when the cumulative costs of the pos-
surrogate new machines. However, it is important to session of the machine exceeds the returns gen-
realize that with many older uncomputerized ma- erated during its lifetime, which is generally the
Croat. j. for. eng. 42(2021)1 67D. Abbas et al. A Proposal for an Integrated Methodological and Scientific Approach to Cost Used Forestry Machines (63–75)
period over which the equipment can operate at To summarize, current models cost the deprecia-
an acceptable operating cost and productivity. tion of new machines, but never cost partially or fully
According to Miyata (1980) this is also defined depreciated used machines in their current state. There
as the time when the cost of lost production ex- is a missing knowledge gap that needs to be custom-
ceeds the cost of owning a new piece of equip- ized to used machines in current costing methods. The
ment, and the equipment owners start to trade risk and uncertainty of owning and operating used
for new equipment. The technical life length, on machines has been hardly covered in the literature.
the other hand, is described as the time from Accordingly, a new method comprised of datasets of
whence the machine goes into operation until it machines along their useful lifetime in isolation as well
is no longer used in any operation (Stokes et al. as in a fleet is required.
1989) independent from the income the machine
generates. That is determined by the maximum
duration expected for the main components of 4. Market Value
the machine before reaching the time for re- The United States and Canada are the World’s larg-
placement. Therefore, the economic life identi- est geographic markets for forestry equipment. In
fied for tax purposes is generally shorter than 2014, both countries accounted for one-third of the
the operational life, which represents the maxi- global demand for forestry equipment (including both
mum duration of the equipment. As for the pur- purpose-built and converted machinery), and their
chase price, the expected life should include market is forecast to increase by 4.5 percent annually
uncertainty ranges linked to the availability of (prnewswire.com 2015). Despite the growth, machine
historical information on the machine past uses manufacturers markets from both countries view their
Þ utilization rates: should be variable along the life used equipment inventories as an obstacle to higher
of the equipment and reflect the aging of the sales of new machinery. Large inventories of older
equipment and the possible changes in the dis- used machines pose a risk to the growth of newer
tribution of delays due to the different patterns models, because of the lower priced commodities, and
of machine breakages. An option is to include this issue is persistent. Other aspects such as weak lo-
probability distributions for reliability/failures cal currencies and high interest rates in countries like
occurrences at the different ages (Cantú et al. Brazil and South Africa hinder the recovery in forestry
2017). Further, the utilization rate determination machines markets (trade.gov 2017). Also, the growth
needs to consider, albeit this being more com- of nations requiring emission standards and regula-
plicated, the downtime across the fleet of ma- tions, create more technical-barriers-to-trade for used
chines owned by the same entrepreneur when machines that are not up to standards. All of these
a whole-system operation is impacted by a sin- factors are further contributing to an oddly shaped
gle machine. The special warranties or services market for both used and new machinery, which is
offered by dealers could also have effects such almost competing. Expenses, such as long hauling of
as to reduce the delays and increase the utiliza- purchased equipment, might further determine the
tion purchase preference of equipment within closer prox-
Þ maintenance factors: should also reflect differ- imity to the operator, especially in the absence of local
ent probability distributions for occurrence of repair dealers. Hence, in terms of clientele, it would be
maintenance and substitution costs for the dif- expected that used machines are going to be more lim-
ferent components, depending on the age, envi- ited to local markets where standards and mainte-
ronment and mode of use in the past. Butler and nance are not an expensive unaccounted-for risk to the
LeDoux (1980) and Butler and Dykstra (1981) operators.
allow for initial maintenance and repair costs to The sale of used machines is a growing market.
be increased exponentially over several time pe- This growth has not gone unnoticed by large manu-
riods. In addition to that, Bilek (2007) uses pro- factures, for example John Deere’s and others’ catch
ductive machine hours for modeling such expo- phrases such as: »sometimes the best new addition to your
nential increase rather than years of life. This fleet isn’t new« seek to promote the sale of certified
point is where a concerted effort needs to be pre-owned machinery (machinefinder.com 2018) and
made, and more investigations are required, to Caterpillar puts it as »quality at a price that meets your
monitor more cases of used machines based on needs« emphasizing that used machines are at an afford
different ownerships, operating conditions, lo- able rate but not down on »needed« performance (cat.
cations and fleet configurations. com 2019). This reflects the potential market demand
68 Croat. j. for. eng. 42(2021)1A Proposal for an Integrated Methodological and Scientific Approach to Cost Used Forestry Machines (63–75) D. Abbas et al.
that may not require, justify or reflect the quota needed valid if there is enough market information of
to pay off more expensive machines. Operators may similar equipment; if the market-based values
use second-hand machines as their main machine, are limited, other approaches need to be consid-
irregularly and other times for backup. ered (IVSC 2013)
In a growing and dynamic market, new machines Þ an alternative would be the »cost approach«, in
sales are expected. For example, new machines are this case, an investor would consider the »econo
introduced when new forest products, technology and mic life« of a machine and not pay more for an
equipment markets are expanded, and more resourc- asset than the cost to replace it with a new (sub-
es become available. This is the case, for example, in stitute) one. This approach considers the func-
the Leningrad region of Northwest Russia where im- tion of the current equipment in use, therefore
ported cut-to-length machines are replacing tree adjusting the selling price of a new piece of
length (Gerasimov and Karjalainen 2012). Technolog- equipment performing the same operations.
ically new and innovative technologies lead to chang-
Adjustment is based on the physical deteriora-
es in forestry operations and integrate new technolo-
tion and functional/economic obsolescence that
gy, for example, it is a de facto for some modern
reflects the current status of the equipment in
machines to benefit from advancements in global po-
use. The cost method is typically more impor-
sitioning systems, which is not an option available in
tant if equipment does not have an active market
old machines. Technology does change the way forest
operations take place (Guimier 1999). Also, the future because of a unique or highly customized scena
of forest machinery has much potential with the ex- rio (IVSC 2013)
tensive big data that connects the extraction, with the Þ the income approach, on the other hand, uses
processing and delivery of products as well as the the future income stream that a piece of equip-
technological advancement. However, it remains cru- ment or machinery might create to estimate its
cial that operators maintain a basic understanding of value »the technical life«. However, it is difficult
the details of how to assess their equity in their assets to directly associate the equipment and econom-
regardless of accessibility to computerized production ic return from it. Present value of income
data. streams generated by a machine is estimated by
According to the International Valuation Standard the appraiser and it is valued based on discount-
Council (IVSC 2013), there are usually three general ing to present, a discount rate is calculated to
approaches for establishing the value of equipment. consider return on investment and risk (IVSC
The market sale comparison approach, the cost ap- 2013).
proach and income approach. Datasets such as »EquipmentWatch@« collect a fee
Þ i n the market sales comparison approach, a to provide information on market pricing trends using
dealer uses »comparable« sales along with deal- an economic index to monitor market changes in pric-
er listings, auction results, and interviews with es and trends over time. Price trends are month to
dealers specializing in the sale of the type of month and year to year. Trends are based on equip-
equipment being appraised. In some cases, an ment types, brand values, usage, market activity and
equipment appraiser might be able to find com- age, as well as regional trends, where regions with
parable sales of similar equipment with the very little or no market activity are excluded from the
same manufacturer, year and model number. In analysis (EquipmentWatch 2018).
other cases, sales or listing information on simi-
lar items would be adjusted by specific factors. However, these trends reflect already defined pric-
Some of the factors that are considered when es for used machines and do not inform them. Tools
comparing a machine to a comparable one in- are also available online (e.g. www.usedequipment-
cludes: manufacturer, model, effective age, con- guide.com/price-calculator), and they help perform an
dition, capacity, price, time of sale, type of sale, estimation of purchase prices for used equipment. In
location, and accessories, amongst other charac- such tools, the user could also query the price of most
teristics. The used equipment market that con- common forest machinery (e.g. harvesters, forward-
sists of dealers, auctions, and public and private ers). The query is based on the selection of machine
sales is the source of some data. On the top of brand, model, year of production and lifetime (hours
comparison, also shipping, taxes and other costs in machine meter), however there is no possibility to
for putting in operation the specific equipment access the mechanism behind the relations used for
would need to be considered. The approach is assessing the prices.
Croat. j. for. eng. 42(2021)1 69D. Abbas et al. A Proposal for an Integrated Methodological and Scientific Approach to Cost Used Forestry Machines (63–75)
North America (US and Canada) the use of selling
prices, auctioning prices and lifetime from websites
such as www.forestrytrader.com could allow building
similar relations as in Fig. 1.
Paying the cost for a warranty policy of a machine
and what it may cover makes it more predictable to
assess the repair and maintenance costs of what is cov-
ered in the policy. This calls of course for expected
transparency between the market and the machine
owner or buyer about the details of what a warranty
and service contract may or may not cover. Warranty
time is assumed to be up to 12 months (deere.com
2019). It becomes easier under these circumstances for
the operator to cost the machine based on the war-
ranty plus the consumables used by the operator such
as fuel, lube and wear parts. In the United States, for
example, the Unified Commercial Code (UCC), a form
of implied warranty under a unified United States
commercial law, implies warranty on the sale of sec-
Fig. 1 An example of market information to help determine the ondhand goods. However, it is difficult to determine
selling prices and lifetime relation of most common models of used which used goods are considered merchantable and
(over 0 use hours) wheeled harvesters observed in the EU (informa- which are not (Kimmel 2013).
tion collected from wwww.mascus.com in 2019) and purchase Broad industry conversations have shown that
price for new models of similar harvesters (collected from BWF, used machinery assessments are based on the pre-
Austria, https://bfw.ac.at/fmdb/ in 2019)
dicted life of the machine to define a certified-used
warranty for a specific period, physical inspection and
Scientific models have attempted to compensate uptime and downtime understanding being impor-
for this lack of information by trying to find a correla- tant assessment criteria. The reliability of a machine
tion between posted largescale second-hand machine has a large effect on its cost to the owner. Reliability in
datasets, to help develop a cost and usability relation- that sense accounts for the machine, its history and
ship to help an owner benefit from their ownership familiarity of the operator with the machine. A physi-
experience of machines and to help lower a manufac- cal inspection is expected to be thorough and covers
turer’s asking price for warranty (Ireland 2009, Kwak tires to machine structures. Without equipment war-
et al. 2012). Malinen et al. (2016) analyzed forestry ranty, and even with warranty, an operator needs to
machines data from the machinery sales website: keep track of how much the machine is costing per
www.mascus.com, a leading online secondhand ma- month. Machines have gone from a manual to a com-
chines portal. It was found that market costing mech- puterized system that tracks every detail. Currently,
anisms were inconsistent; at times based on age while the market is mixed. For those very reasons, the mar-
on other instances based on usage of certain machines. ket portion is broader than the financial costing and
Further, regional variations were another factor that performance – but this is what the operator is going to
determined the type of used machines available for pay to buy a used machine (or determine the resale
sale. For example, newer used models were found to price of the machine).
be sold in northern Europe, whereas older used mod- The market for used and new machines is signifi-
els were found to be sold in eastern Europe (Malinen cant. Scientific and commercial models have attempt-
et al. 2016). The access to this information could allow ed to improve the machine ownership experience by
observing the relations similar to those between the estimating a statistical relationship between machines
selling prices2 of common forest harvesters in the EU and posted market values. Implied warranty in the
and their lifetime as in Fig. 1. Similar analysis could be sale of used machines is not something to be relied
performed for different regions. As an example, in upon. With the introduction of more computerized
systems, the data available to machine owners and the
market are converging and eventually this would lead
2
Assuming that the selling prices approximate the final auc- to a clearer trend of costing used machines. However,
tioning price of the machinery the market for uncomputerized machines and its
70 Croat. j. for. eng. 42(2021)1A Proposal for an Integrated Methodological and Scientific Approach to Cost Used Forestry Machines (63–75) D. Abbas et al.
small-scale users still exists. More effort is required to ever, this worth may have little to do with the market
help increase transparency between the machine own- value as an owned used machine serves the operator
ers and market pricing mechanism of equipment since in a more versatile manner than a potentially new ma-
it is not as straightforward as a financial assessment. chine would.
A simplified cost assessment method of used ma-
5. Discussion chines would require market-based and operational-
based calibration of a model coefficient to be used in
In this study, we propose an alternative to the de a tailored cost model. This would require dedicated
facto new machine cost approach for assessing the cost time tracking and cost commitment over the lifetime
of used machines. Our approach in turn promotes the of the machine. With this in mind, this study recom-
importance of considering the affordability aspect of mends basing the callibration on data collected from
the ownership decision. Operators and machine own- previous studies, existing used machines and gradual
ers are, to a large degree, struggling to make a profit update with information about the performace of
(Spinelli et al. 2017, Regula et al. 2018) and as such it newer models of the used machines. Further research
is crucial to explain the multiple factors that set the and data are required to collect all the information
value of the machine. Accordingly, the market valua- necessary to evaluate all three aspects of the owneship
tion of the used machine needs to be better understood decision.
in conjunction with the operator’s knowledge of the
The proposed costing concept requires the collec-
operational value and financial cost of the machine.
tion of the following data for the used machines cost
The proposed methodological concept of the value of
assessments:
a used machine to the owner in making ownership
investment is based on understanding three distinct Þ a value set for the operational value and reli-
values: that of the machine availability (operation), ability of a machine
cost (financial fixed and operating cost criteria) and Þ as much as possible understand the costs of re-
price (market dynamics). pair and maintenance of the existing machine,
With used machines, especially, there is no one knowing that it is already depreciated, hence the
form of analysis that fits all cases. Indeed, daily ac- weight is more on the operational variable costs
counting of the operational cost of used machines are of the machine than on the fixed capital cost
critical, however, the relevance of even this daily in- Þ market advisors could help explain further the
formation to the market posted values of machines is costing mechanism used to determine the pric-
unclear. The collection of longer-term performance ing of used machines.
data of used machines is lacking. Therefore, more field Our proposal for an integrated more pragmatic
data are required to build a more rigorous model for
methodological and scientific approach to costing a
used machines. For example, more surveys and data
used machine would entail:
collection from source could help improve under-
standing of machinery performance, but also as ma- Þ develop similar examples to figure one that
chines advance, data collection would be expected to presents market information that monitor used
be more automatic using software to collect this infor- machines targeting a set of field data collected
mation. from different machines in isolation as well as
from their performance as part of a fleet. For
An operational value would seek to assess the ma-
example, this may help understand the selling
chine downtime and uptime and assessment in rela-
prices of used machinery based on different
tion to the fleet portfolio; a financial assessment would
technical lives – as it shows the number of hours
seek to assess fixed and variable expenses of the ma-
chine, with more weight on the operational expenses – as the duration of the machines indicates when
of actually running the machines. However, if such to replace (economic life) or continue to operate
variables are not available, then the owner might use (technical)
market values of the used machine capital cost values Þ produce examples that demonstrate errors/vari-
and not new machine values and focus more on the ability of hourly costs compared with the de
variable costs of operating the machine, such as con- facto new machinery details. Albeit no one size
sumables and non-consumables. As the operational fits all, but a large enough sample with condi-
and cost value of the machine is compared with the tions of operations in mind might develop a
posted market value of similar machines, an operator more relevant operational rate for different
may decide the worth of owning the machine. How- types of machines based on their usability
Croat. j. for. eng. 42(2021)1 71D. Abbas et al. A Proposal for an Integrated Methodological and Scientific Approach to Cost Used Forestry Machines (63–75)
Þd
evelop a coefficient factor that may be com- based more on empirical as opposed to alternative
pared to the standardized new machinery in- new machinery data estimates.
puts in the costing method To conclude, this study offers a step to help pro-
Þ c ollect values more sensitive to the used status vide the reader with ideas to test and explore further
of the machine. and to take new machinery costing methods results of
This used machinery analysis offers a new under- used machines published in the literature cautiously.
standing, which not only observes the Scheduled Ma- The elements and drivers of costing a used versus a
chine Hours (SMH) or Productive Machine Hours new machine are different and as a result the need to
(PMH) but also the Economic Machine Hours (EMH integrate the operational and market values with the
financial accounting cost provides a more accurate
– when a machine ceases to produce a profit and is
estimate of the machine’s value. Operational and mar-
replaced) and the Technical Machine Hours (TMH –
ket factors articulate further the used machine value
when a machine reaches the end of its life, regardless
because they observe and account for the »used« na-
of profit over a replacement). This is key, since it does
ture of the machine. These factors are more current
not cost the same to own an idle used machine com-
and do not compare the production capacity of both
pared to an idle new machine – reflected in the SMH.
new and used machines, nor do they under or overes-
This new look into the used machine ownership expe-
timate the wear and tear value of used machines. Fur-
rience analysis is missing in the literature. Not only is
ther, despite the clear significance of the market in
this aspect missing, but also the economic benefit from
identifying the sale, resale and trade of used machines,
owning a machine that has been maintained is com-
the mechanisms themselves to define the value of a
pared to another used machine equally by comparing used machine are not clear and may vary with region,
both to a new machine in cost assessment methods is age, model, and other dynamics. Hence, the current
misleading. Several studies have indicated that struc- methods that cost used and new machines with the
tured management techniques and advanced decision same inputs and methods are unrealistic.
support and diagnostic tools can help minimize main-
tenance and repair costs over the lifetime of machines Acknowledgement
(National Academy Press 1996), making repair and
The authors would like to express their gratitude
maintenance optimization both a technological and
to, and appreciation of, every effort that helped make
economic necessity (Dekker 1996).
this manuscript possible and the outstanding support
and constructive remarks from the Croatian Journal of
6. Conclusions Forest Engineering editorial board and reviewing
team.
Developing estimates that target the operational
value of the machine, plus its costing methods data
input, with market regional, age, hours and model 6. References
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