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Life cycle costing, LCC, is the process of economic analysis to asses the total cost of ownership of a product, including its cost of installation, operation, maintenance, conversion, and/or decommission.
By using LCC, total cost of the product can be calculated over the total span of product life cycle. Compares competing alternatives considering all significant costs
Expresses results in equivalent dollars (present worth)
LCC is a economic tool which combines both engineering art and science to make logical business decisions. This analysis provides important inputs in the decision making process in the product design, development and use.
By using LCC, product suppliers can optimize their design by evaluation of alternatives and by performing trade-off studies. By using LCC, product suppliers can evaluate various operating and maintenance cost strategies (to assist product users).
By
Project Engineering wants to minimize capital costs as the only criteria, Maintenance Engineering wants to minimize repair hours as the only criteria, Production wants to maximize operation hours as the only criteria, Reliability Engineering wants to nullify failures as the only criteria,
Accounting wants to maximize project net present value as the only criteria. Shareholders want to increase stockholder wealth as the only criteria. LCC can be used as a management decision tool for synchronizing the divisional conflicts by focusing on facts, money, and time.
Why should engineers be concerned about cost elements? It is important for engineers to think like managers and act like engineers for a profit maximizing organization
Cost Considerations
Present Worth Salvage Costs Initial Cost
Costs
Rehabilitation Cost
Years
Salvage Value
Maintenance Costs
Labor cost, Energy cost, Spare & maintenance cost, Raw material cost.
Inspection Costs
Occurs
Cost
Rehabilitation Costs
Expense
incurred in restoring an entity, equipment, machinery, plant, or property to acceptable or normal operational conditions.
Salvage Value/Costs
Occurs once at end of life of structure
Removal cost Cost of remaining effeciency
Step 1: Determine time for each cost element, Step 2: Estimate value of each cost element, Step 3: Calculate Net Present Value of each element, for every year (over its time period), Step 4: Calculate LCC by adding all cost element, at every year, Step 5: Analyze the results.
The inflation rate is the percentage by which prices of goods and services rise beyond their average levels. It is the rate by which the purchasing power of the people in a particular geography has declined in a specified period.
PVs of each cost elements is calculated for an equipment (at every year). PVs of each cost element in a year are added. The process is done for every year over the life cycle, i.e. LCC is calculated for every year.
Step 5: Analysis
The datas collected from LCC are analyzed. If one product has to be selected among multiple equipments, then LCC is calculated for every product.
Data for every product are analyzed, and the lowest LCC option become preferred.
But lowest LCC option may not necessarily be implemented when other considerations such as risk, available budgets, political and environmental concerns are taken into account.
Analysis tools
The use of computer programs can considerably reduce the time and effort spent on formulating the LCCA, performing the computations, and documenting the study. Listed below are several LCCA-related software programs: Building Life-Cycle Cost (BLCC) Program Economic analysis tool developed by the National Institute of Standards and Technology for the U.S. Department of Energy Federal Energy Management Program (FEMP).
ECONPACK for WindowsAn economic analysis tool developed by the Army Corps of Engineers in support of DOD funding requests. Energy-10Cost estimating program available from the Sustainable Buildings Industry Council (SBIC). Success Estimator Estimating and Cost Management SystemCost estimating tool available from U.S. Cost.
Conclusion
The following are the key ideas for this topic:
The term "life cycle" has several meanings in various communities, but they include a cost model for total cost of ownership (and/or total profit); dealing with the logistics of supplying, transporting, and maintaining equipment; and end-of life disposal/retirement issues.
A sufficiently rich economic model can help designers and users make informed decisions to minimize total cost of ownership. However, the real economic constraints and potentially suboptimal behavior of customers may lead to making choices for purchases and operation that are less than what would be optimal without these constraints.
A true life cycle perspective includes designing not only for manufacturing cost, but also includes the costs (monetary and otherwise) for all the phases of the lifecycle, including manufacturing, deployment, maintenance, operation, and eventual retirement/disposal.
INTRODUCTION
The
aim of this study is to undertake an economic assessment of the materials available for floor covering in commercial buildings and spaces. study is basically based on alternative use of vinyl on the place of carpet.
The
Assumptions
NPV ANALYSIS
NPV of carpet=171.71 NPV of vinyl =256.43 In general terms, the vinyl tile flooring option is 17 per cent more expensive than the wool/nylon option. If the $10 per m2 per annum loss of rental is included, then vinyl tiles are 49 per cent more expensive than the carpet.
Conclusion
Sensitivity
Analysis-
The initial capital cost of carpet is greater than that for vinyl flooring. In theoretical terms, in choosing the less expensive alternative in initial cost, an opportunity arises for investing the difference in the capital costs, that is: wool/nylon mix costs $54.00 per m2; vinyl tile flooring costs $37.00 per m2 ; sum available for investment $17.00 per m2.
Break-even analysisBreak-even period is that period at which the cost of the new carpet replacement (including subsequent running costs) are equal to the costs of retaining the vinyl flooring. The cost of the new carpet replacement, assuming it to be wool, includes initial cost of$54.00 per m2 plus the consequent net of tax cash flows. The cost of retaining the vinyl flooring (i.e. cleaning costs) is $32 per m2 per annum ($20.40 per m2 net of tax) and it is assumed that it has been fully depreciated for tax purposes. The above figures are tabulated to show the break-even period which is just over three years.
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