LCC . YUSUF OZ FATIH BOLUKBAS HUSEYIN ANIL KARABULUT. Introduction. Why use Life Cycle Costing? Growing pressure to achieve better outcomes from assets means that ongoing operating and maintenance costs must be considered as they consume more resources over the asset’s service life.
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HUSEYIN ANIL KARABULUT
Why use Life Cycle Costing?
Growing pressure to achieve better outcomes from assets means that ongoing operating and maintenance costs must be considered as they consume more resources over the asset’s service life
The Life Cycle Cost (LCC) of an asset is defined as:
LCC model is an accounting structure containing terms and factors which enable estimation of an asset's component costs
Design Service Life Planning
Existing structures: It focuses on the rest of service life, maintenance and replacement costs.
New structures: It requires some mathematical assessments of components’ service lives.
Effects to be considered:
Certainty of service life can’t be exactly determined unless all influencing factors are taken into consideration.
Design Environmental Life-cycle Assessment
Products are required to have:
Design step of LCC is very important with:
Framework for LCC budget estimation covers these steps:
Risk analysis and management
Design project specific risks:
Design risk response measures:
Types of Life cycle data
Calculate the time required to return the initial investment.
The investment with the shortest pay-back time is the most
Quick and easy calculation. Result easy to interpret
Does not take inflation, interest or cash flow into account
Basically the same as the simple payback method, it justtakes the time value into account
Takes the time value ofmoney into account
Ignores all cash flow outsidethe payback period
NPV is the result of the application of discount factors, based on a required rate of return to each years projected cash flow, both in and out, so that the cash flows are discounted to present value.
Takes the time value of money into account. Generates the return equal to the market rate of interest. It use all available data
Not usable when the comparing alternatives have different life length. Not easy to interpret
This method express the one time NPV of an alternative asa uniform equivalent annual cost
Different alternatives withdifferent lifes length can becompared
Just gives an averagenumber. It does not indicatethe actual coast during eachyear of the LCC
It is possible tocalculate the test discount rate that will generate an NPV ofzero. The alternative with the highest IRR is the bestalternative
Result get presented inpercent which gives anobvious interpretation
Calculations need a trail anderror procedure. IRR can bejust calculated if theinvestments will generate anincome
The NS is calculated as the difference between the present worth of the income generated by an investment and the amount invested.
Easily understood investment appraisal technique
NS can be only use if the investment generates an income
NPV = C + R – S + A + M + E
C = investment costs
R = replacement costs
S = the resale value at the end of study period
A = annually recurring operating, maintenance and repair costs (except energy costs)
M = non-annually recurring operating, maintenance and repair cost (except energy costs)
E = energy costs