Asia e University

Malaysia institute 0f logistics

Intermediate logistics officer course(Executive bachelor in logistics management)

Assignment no4

Life cycle cost

Ltcdr hamed Alghafri

Royal Navy of Oman

Date:23 MAY 2011

Contents

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INTRODUCTION..............................................................................................................2

LIFE CYCLE COST DEFINITIONS..................................................................................3

WHY USE LCC?..............................................................................................................3

Goals and purpose of LCA...............................................................................................4

Asset management.........................................................................................................4

Conclusion.......................................................................................................................6

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INTRODUCTION

A life cycle assessment (LCA, also known as life cycle analysis and cradle-to-grave

analysis) is a technique to assess environmental impacts associated with all the stages

of a product's life from-cradle-to-grave (i.e., from raw material extraction through

materials processing, manufacture, distribution, use, repair and maintenance, and

disposal or recycling). LCA’s can help avoid a narrow outlook on environmental

concerns by:

Compiling an inventory of relevant energy and material inputs and environmental

releases;

Evaluating the potential impacts associated with identified inputs and releases;

Interpreting the results to help you make a more informed decision.

The simple payback method is frequently used for small capital expenditures which are

so clearly economical that the time and expense of a full LCC analysis is not

worthwhile1.

1 International Conference of Maintenance Societies (ICOMS®-2003).page 2. http://www.icoms.org.au. 17 Jun 2011

Life cycle assessment. http://en.wikipedia.org/wiki/Life_cycle_assessment

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LIFE CYCLE COST DEFINITIONS

Life cycle cost is the total cost of ownership of machinery and equipment, including its

cost of acquisition, operation, maintenance, conversion, and/or decommission. LCC are

summations of cost estimates from inception to disposal for both equipment and

projects as determined by an analytical study and estimate of total costs experienced in

annual time increments during the project life with consideration for the time value of

money. The objective of LCC analysis is to choose the most cost effective approach

from a series of alternatives (note alternatives is a plural word) to achieve the lowest

long-term cost of ownership. LCC is an economic model over the project life span.

WHY USE LCC?

LCC helps change provincial perspectives for business issues with emphasis on

enhancing economic competitiveness by working for the lowest long term cost of

ownership which is not an easy answer to obtain. Consider these typical problems and

conflicts observed in most companies:

1. Project Engineering wants to minimize capital costs as the only criteria,

2. Maintenance Engineering wants to minimize repair hours as the only criteria,

3. Production wants to maximize uptime hours as the only criteria,

4. Reliability Engineering wants to avoid failures as the only criteria,

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5. Accounting wants to maximize project net present value as the only criteria, and

6. Shareholders want to increase stockholder wealth as the only criteria.

Management is responsible for harmonizing these potential conflicts under the banner

of operating for the lowest long term cost of ownership. LCC can be used as a

management decision tool for harmonizing the never ending conflicts by focusing on

facts, money, and time.

Goals and purpose of LCA

The goal of LCA is to compare the full range of environmental effects assignable to

products and services in order to improve processes, support policy and provide a

sound basis for informed decisions.

The term 'life cycle' refers to the notion that a fair, holistic assessment requires the

assessment of raw material production, manufacture, distribution, use and disposal

including all intervening transportation steps necessary or caused by the product's

existence2.

Asset management

During the life of the asset, decisions about how to maintain and operate the asset need

to be taken in context with the effect these activities might have on the residual life of

2 Life cycle assessment. Page 4. http://en.wikipedia.org/wiki/Life_cycle_assessment. 17 Jun 2011

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the asset. If by investing 10% more per annum in maintenance costs the asset life can

be doubled, this might be a worthwhile investment. Other issues which influence the

lifecycle costs of an asset include:

site conditions,

historic performance of assets or materials,

effective monitoring techniques,

appropriate intervention strategies.

Although the general approach to determining whole-life costs is common to most types

of asset, each asset will have specific issues to be considered and the detail of the

assessment needs to be tailored to the importance and value of the asset. High cost

assets (and asset systems) will likely have more detail, as will critical assets and asset

systems. Maintenance expenditure can account for many times the initial cost of the

asset. Although an asset may be constructed with a design life of 30 years, in reality it

will possibly perform well beyond this design life. For assets like these a balanced view

between maintenance strategies and renewal/rehabilitation is required. The

appropriateness of the maintenance strategy must be questioned, the point of

intervention for renewal must be challenged3.

3 Whole-life cost. Page 3

http://en.wikipedia.org/wiki/Whole-life_cost. 17 Jun 2011.

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Conclusion

LCC is simply a way-stop on the never ending journey for reducing costs. LCC is clearly

not a destination. LCC provides the tools to engineer maintenance budgets, ownership

costs, and present decision making scenarios in a financial perspective to achieve the

lowest long term cost of ownership4.

4 International Conference of Maintenance Societies (ICOMS®-2003). Page 4

http://www.icoms.org.au. 17 Jun 2011

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References

1. International Conference of Maintenance Societies (ICOMS®-2003).page 1

http://www.icoms.org.au. 17 Jun 2011

2. Life cycle assessment. Page 2

http://en.wikipedia.org/wiki/Life_cycle_assessment. 17 Jun 2011

3. Whole-life cost. Page 3

http://en.wikipedia.org/wiki/Whole-life_cost. 17 Jun 2011.

4. What is whole life cost analysis?

http://www.bsria.co.uk/news/1886/. 17 JUN 2011.

5. End-of-life (product)

http://en.wikipedia.org/wiki/End-of-life_%28product%29. 17 Jun 2011.

6. Product life cycle management (marketing)

http://en.wikipedia.org/wiki/Product_life_cycle_management. 17 JUN 2011.

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