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Life Cycle Costs

Life Cycle Costs (LCC) stands for all the combined costs that the object will face or can be assumed to face during its defined life cycle. Life cycle describes the time period starting from the definition of the equipment or the system to the moment of taking it off the use and wrecking or relocating it. Different costs can cumulate to the object during its life cycle from e.g. design, manufacturing, use, education, maintenance and eventual end-of-life actions. Usually most of the cumulating costs come from the use and unavailability. Especially in the more continuous process industry the unavailability costs coming from the system downtime can become a significant factor in the total life cycle costs. These costs coming from downtime can be assessed to be direct losses from the corporate revenues.

When comparing different design solutions the goal of the analysis is to direct towards managing the whole entity and to achieve the lowest possible overall costs during the life cycle of the analyzed system. The results gotten from the LCC analysis can be used to point out the possibilities that the different equipment and process solutions can have on the system. The analysis directs the acquisition plans based on the estimated life cycle costs and not only on the investment costs of equipment. Difficulty to the analysis brings the required estimation of future where the costs and other factors change. These estimates should be made based on the best available knowledge and by leaving some room for some assumptions, so that the analysis wouldn't be based solely on the investement cost estimates. With many equipment the investment costs form only a small margin of the total life cycle costs the equipment causes. The analysis converts the preliminary technical information of the system into a form that acquisition and financial personnel can clearly understand.

When comparing the life cycle costs of different design solutions it is important to notice that the majority of the costs will be determined based on the design decisions made in the start of the life cycle. Most of the actual life cycle costs cumulate during the time period from the start-up onwards. Practically this means that with well-thought-out design and early enough performed LCC analysis it is possible to lower the costs of the operational period significantly. Depending on the business sector life cycle costs can be analyzed from multiple points of view. For example with equipment having long life cycles the life cycle costs are one of the most important factors in the acquisition phase, whereas some equipment with shorter economical life cycles can be evaluated based on their payback period. Most beneficial would be to perform LCC analysis for objects with long life cycles where the costs on the operational period can be assumed to be many times bigger than the investment costs in the starting phase.

Depending on the business sector equipment can obtain costs from very different kinds of cost elements during their life cycle. In some cases downtime costs can be dominant, whereas in some other location equipment uses a lot of energy and therefore causes big energy costs. Below is a list of the most common cost elements that cause life cycle costs for equipment:

  • investment costs, acquisition price
  • installation and order costs (including education)
  • energy costs (predicted costs for the system use)
  • usage costs (operations personnel costs)
  • maintenance and repair costs (repeating and predictive repairs)
  • downtime costs (lost production)
  • environmental costs
  • end-of-life costs

ELMAS software, developed by Ramentor, is a versatile tool also for life cycle cost management. Read more about the LCC solution >>

Sources:
Barringer, 1996
LempiƤinen, 2007
Komonen, 2009