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Life Cycle Cost (LCC) analysis is a collective term comprising many kinds of analysis, e.g., reliability-availabilitymaintainability (RAM) analysis, economic analysis, risk analysis, and so on. A main objective of the LCC analysis is to quantify the total cost of ownership of a product throughout its full life cycle, which includes research and development, construction, operation and maintenance, and disposal. The predicted LCC is useful information for decision making in purchasing a product, in optimizing design, in scheduling maintenance, or in planning revamping.
Aalto-yliopisto Insinritieteiden korkeakoulu Lahden keskus Helena Mlkki 10.2.2011
Economic assessment
It has several names, such as
Life Cycle Costing (LCC), Life-Cycle Cost Analysis (LCCA), Life Cycle Profit (LCP), Full Cost Accounting (FCA), Total Cost Assessment or Accounting (TCA), Total Ownership Cost (TOC) for defense systems
The method is calculating the cost of a system over its entire life span.
IEC-60300-3-3: Life cycle costing ISO 15663 Petroleum and natural gas industries Life cycle costing SAE-ARP4293: Life cycle cost- techniques and applications SAE-ARP4294: Data Formats and Practices for the LCC of Aircraft Propulsion Systems.
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where Cic: Initial cost: is the purchasing price of the component/system. This can be paid immediately or in several down payments over the years. Cin: Installation cost: start up costs that the operator has to pay that are not included in the purchasing price, e.g. staff training cost, material losses. Ce: Energy costs: the product of energy use and cost of different types of energy. Co: Operating costs: the yearly operating cost, excluding the energy cost. Cm: Maintenance costs: cost of service and planned repairs. Cs: Downtime costs: cost of unplanned stops. Cenv: Environmental costs: e.g. cost of environmental permits. Cd: Decommission cost: estimated costs to decommission a product/plant at the end of its lifetime.
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When determining the energy costs, the effects of fixed charges, power charges, penalty charges for reactive power demand etc., must be included if possible. Corresponding factors must also be considered for energy forms other than electricity. In addition, the user must decide which costs to include, such as, maintenance, down time, environmental, disposal, and other important costs.
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Estimating costs
When all possible cost elements have been identified (i.e. all elements of the matrix) one has to find or estimate the cost for each element.
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2. 3.
Engineering cost method - involves the direct estimation of a particular cost element by examining the product component-by-component or part-by-part. It uses standard established cost factors, for example firm engineering and manufacturing estimates Analogous cost method -cost estimation based on experience with a similar product and technology in the past. Parametric cost method - uses significant parameters and variables to develop estimates which are usually in the form of equations. A parameter reflects a conversion factor from one system of units to another. A price like cost per manhour, for example, converts person hours into costs. An example of an empirical ratio is the number of maintenance person-hours per failure of a given component, which may be known by experience.
Once the costs have been estimated the present value of all future costs and incomes have to be calculated by "net present value".
Aalto-yliopisto Insinritieteiden korkeakoulu Lahden keskus Helena Mlkki 10.2.2011
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Discounting of LCC
Yoshio Kawauchi and Marvin Rausand. 1999. Life Cycle Cost (LCC) analysis in oil and chemical process industries. 82 p. http://www.ntnu.no/ross/reports/lcc.pdf
where NPV is the net present value of future cash flows; Cn is the nominal cash flow in the n-th year; n is the specific year in the life cycle costing period; X is the discount rate; T is the length of the time period under consideration, in years. Discounting is a process for taking account of the changing value of money. Since LCC analysis considers costs that will be incurred some time in the future, it is necessary to discount all revenues and expenditures to a specific decision point.
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Tool description To enter cost data for different life cycle phases and evaluate the impact on the total cost. To compare the total cost of different alternatives, compare the effect of different maintenance strategies, include cost of failures, breakdown & replacement etc.
Costs in lifecycle phases
1600 000 1400 000 1200 000 1000 000 800 000 600 000 400 000 200 000 0 Init ial Operat ion End-of -lif e Tot al
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