July-August 2011

Understanding Costs

In order to make the wise decisions necessary to streamline operations and improve their bottom line, managers must first be able to quantify costs. Yet we often find, through our work of conducting operational reviews of landfills, that many of them are expected to manage without vital cost data—which of course they cannot do.

Without that ability, a simple cost/benefit analysis becomes a random shot from the hip—based more on feel than fact.

Why does this happen? Because the financial/budget models used by many landfills are written in the language of accountants—not of landfill managers.

In those cases, landfill costs are often lumped into categories that make sense for the finance department, such as special department expenses, capital projects, reimbursed departments for services, specialized services, salaries and wages, equipment expenses, and facility maintenance.

Pulling from these categories, how could a manager possibly determine whether it’s more cost effective to haul soil with the scraper, or with the articulated haul trucks?…or to close early on Sunday?…or to buy a wood grinder instead of continuing to outsource?…or to begin using ADC in lieu of soil?

The correct answer is: Not easily or with much accuracy.

Landfill managers must know machine owning and operating costs, airspace costs, labor costs, and a detailed breakdown of how much the various tasks at the landfill cost. They also must be able to calculate simple production rates.

One of the most common solutions to this problem is to sit down with the finance folks and simply ask them to translate into units you need and understand. You’ll probably have to define what those units are, but once that’s done you’ll be able to recategorize the costs into something that makes sense.

Start with some basic information: hourly labor and equipment costs. Be sure that the labor costs include all taxes, benefits, etc. Remember: You want to know what your crew-scheduling decisions really cost. This is something that the financial/payroll department should be able to provide with little effort.

You’ll also need to know hourly equipment costs. Make sure those costs include capital and operating costs, including fuel, maintenance and repair costs, etc. Unfortunately, if equipment maintenance and repair records are not available or have all simply been lumped together, you may have to calculate those costs yourself. Along that line, a Caterpillar Performance Handbook provides an excellent template for calculating owning and operating costs. Most other equipment manufacturers can provide similar guidance.

As your knowledge of costs increases, you can begin calculating the cost of specific activities. This may require you to determine specific production rates. For example, let’s look at the potential cost savings of implementing the use of alternative daily cover (ADC)—in the form of mechanically placed tarps. There are three parts to this analysis.

Part 1
Part 1 is calculating the hourly cost of every machine involved in the process, including the loader, truck, dozers, and tarping machine.

Let’s say the costs work out as follows:

Loader: $86/hr.

Articulated Truck: $115/hr.

D5 Dozer: $78/hr. (used to place soil)

D8 Dozer: $140/hr. (used to transport the tarping machine)

Tarping Machine: $28/hr.

Part 2
Part 2 is to determine the current cost of placing cover soil. Start by quantifying the average surface area covered each day, how much soil is used, and then assign a total cost. Here’s a rundown on how to do it:

Area Covered—Calculate the surface area of each day’s cell by multiplying length by width.  Let’s say the completed cell is 125 feet by 100 feet. That’s 12,500 square feet.

Volume of Soil Used—Determine how much soil is used on an average day.  The most common way to do this is to simply count truckloads. Let’s say that on average, your crew hauls 26 truckloads of soil each day, using a truck that has a 20-cubic-yard payload. That works out to 520 cubic yards (14,040 cubic feet) of soil.

14,040 cubic feet of soil, spread over 12,500 square feet is equivalent to a depth of 1.1 feet.  Similarly, 520 cubic yards of soil spread over 12,500 square feet is 0.0412 cubic yards per square foot. We’ll use this information later.

Cost of Soil—You must come up with a cost per cubic yard for the soil. This will include the cost of excavating, hauling, and placing it—along with the cost of the airspace it consumes. You’ll need to know hourly machine and labor costs, as well as some basic production rates. For this example, assume that the soil is excavated with a loader, loaded into an articulating truck, hauled to the active face, dumped, and spread with a small dozer—a D5.

Start by timing the process. See how long it takes to process one days’ worth of soil (26 loads). Let’s say it takes 3.8 hours to excavate, transport and dump the soil. That’s 3.8 hours for the loader ($86 per hour) and the articulated truck ($115 per hour). Also assume that it takes 1.5 hour for the D5 (at $78 per hour) to spread the soil.

Thus, the total cost for this operation is:

3.8 x $86  =  $327

3.8 x $115 = $437

1.5 x $78 = $117

Total: $881

Accordingly, it costs $881 to load, transport and spread 520 cubic yards of soil. This works out to $1.69 per cubic yard.

Additionally, the cost of airspace consumed by the soil is estimated at $8 per cubic yard…times 520 cubic yards…or $4,160 per day.

So, the total cost of covering with soil is $5,041 per day…divided by 12,500 square feet…works out to slightly more than $0.40 per square foot.

Part 3
Part 3 includes calculating the cost of using a tarp in lieu of soil.

If it takes 1 hour to place the tarps using the D8 Dozer and the tarping machine, then the machine cost is:  ($140 × 1) + ($28 × 1) = $168 per hour

Additionally, if the tarp replacement cost is $12,000 and the tarps last an average of 26 weeks (being used six days per week), then the cost of the tarps is:

($12,000 ÷ 26 weeks) ÷ 6 days = $77 per day.

Thus, the daily cost of using tarps is $245 ($168 + $77) per day to cover 12,500 square feet…or $0.02 per square foot.

Bottom line: In this example, covering with soil costs $0.40 per square foot, while covering with a tarp costs only $0.02 per square foot.

With this knowledge in hand, a manager is now in a position to make an informed decision to switch to ADC…and has the financial backup necessary to justify it.

There are many analyses like this one that a landfill manager could—and should—perform in the ongoing effort to improve operations and reduce costs. Good decisions are based on good data, but it all starts with knowledge of costs.

Author's Bio: Neal Bolton is a consultant specializing in landfill operations and management.

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