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CASE PRESENTATION
ISO 15686-5 defines Life cycle cost as the cost of an asset, or its parts throughout its life cycle, while fulfilling the performance requirements
Methodology for systematic economic evaluation of life cycle costs over a period of analysis
Economic value of an asset = NPV of the expected future cash flows generated by the asset
Economic analysis used in the selection of alternatives that impact both pending and future costs. Cradle to grave costs Economic model of evaluating alternatives for equipment and projects.
Primary criteria for investment or system selection is based on Procurement costs only Whereas LCC analysis is required to demonstrate that operational savings are sufficient to justify the investment costs.
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 uptime hours as the only criteria, Reliability Engineering wants to avoid failures as the only criteria, Accounting wants to maximize project net present value as the only criteria, and Shareholders want to increase stockholder wealth as the only criteria.
LCC is everywhere .
Manufacturing involving heavy investments Asset management Construction business R & D investments Military investments Etc.
Relevant costs
Time Horizon Discount rate
Comparing future costs with current costs can be done using Net Present Value (NPV) What is NPV? The amount to be invested in the bank today to pay for all future costs at a given interest rate
Selecting the right discount rate is crucial as it can direct the overall decision
Note on LCC
LCCs undergone may well form part of a larger study that will incorporate these things While the larger picture is important, LCC intends only to evaluate the best cost alternative
At Last
LCC is an economic evaluation method It is about money and the best value for money Helps an investor to ascertain the costs of alternatives and make a decision
References
Life cycle costing video Lecture LCC Bus Under frame Case Study Google Books : Life Cycle Costing : Techniques, Models and Applications Wikipedia Links : 1 , 2 , 3 And most importantly, Google !!!
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