Overview:

When purchasing machinery and equipment it’s important to perform a cost benefit analysis. A cost benefit analysis is one of the best ways we can avoid making poor buying/leasing/rental decisions. Performing a cost benefit analysis allows us to decide whether making a capital investment represents more or less risk to the company.

 Purchase Thresholds:

1) If the purchase is under $5,000 then the purchase can be directly expensed to the job or yard.

2) If the purchase is greater than $5,000 but less than $50,000 then:

a) A Return On Investment (ROI) form and a white paper write-up is completed and sent to the Financial Manager/Controller along with a copy the proposal/purchase order.

b) Once the Financial Manager/Controller completes their review they’ll send the packet to the Chief Financial Officer for review.

c) Once the Chief Financial Officer has completed his/her review final approval is needed from the Regional Manager.

3) If the purchase is greater than $50,000 then:

a) Steps (a) through (c) from above must be completed.

b) Final approval from a member of the Executive Committee is required.

Return On Investment Form (ROI): (Attached here to How To)

The Return On Investment Form (ROI) was created as a tool to aide in the cost benefit analysis. By inputting information into various fields (YELLOW FIELDS) the form will derive:

· Net present value of Total Cumulative Discounted Benefit Flow

· Return on investment-discounted

· Payback in years

· Total annual benefit per year

· Total benefits realized per year

· Total cost per year

· Total annual cash benefit/<cost> per year

· Cumulative benefit flow per year

The form will also calculate the Discounted Benefit Flow (present value) based on the time value of money

· Discounted costs

· Discounted benefits

· Total discounted benefit flow

· Total cumulative discounted benefit flow

Whitepaper:

The standard “whitepaper” has four (3) parts:

1. Project Overview: Explain the current or future need for the machinery or equipment. What projects will it be used on? Duration of work?

2. Analysis: Explain what type of machinery or equipment is needed. What are the makes, models capacities and pricing? If there are more than one manufacturer of the same type of equipment explain why is preferred over another.

3. Recommendation: What the choice should be and why.