LIFE CYCLE COST CALCULATION

By James Bryle G. Villareal

Life Cycle Cost

Life cycle cost (LCC) calculations are used as a tool to evaluate the different investment options
for equipment. Included in LCC calculations are the product’s combined costs during a specific
period – usually 10 years – which includes capital costs, operating costs, and service and
maintenance costs.

It is the approach used to have a grasp on the costs that will be incurred by a certain product for
evaluation and comparison purposes.

Note: Usually the span of time that we are taking into account is from when the product has just
been purchased up to the product’s end stage, but a specific period can be set depending on the
application.

Life Cycle Cost Calculation

of a Light Bulb
Energy Cost

Cost = Rate x Energy

= ($0.30 /kWh) x (60 W x 50,000 hrs) (1kW/1000W)

= $900.00

No. of Light Bulbs needed = (50,000 hrs / Life Span)

= (50,000 hrs / 1500 hrs)

= 33 bulbs

Replacement Cost = (33 bulbs) x ($1.50 / bulb)

= $50.00

Factors

Throughout industrial manufacturing, LCC is a well-recognized method to simulate the full

cost of ownership for capital equipment. The calculation of the LCC for an industrial machine
will vary from industry to industry, and in the Air Compressor Industry it is typically calculated
by taking into consideration three major factors.

1.) Capital Equipment Expenditure (Capex) – What is the cost of acquiring the equipment? If
the LCC exercise is being run to compare two Air Compressors from competing brands, this will
include only the compressor cost (as in this example). If the LCC exercise is being run to
calculate full return on investment then installation and ancillary costs will also be take into
account here. Simply put, it is the cost needed for the acquisition of the compressor.

2.) Ordinary Maintenance Costs – What is the cost of maintaining the equipment? The
manufacturer declared costs of maintaining the equipment regularly with the use of consumables,
including the labour cost involved in the maintenance. Over time, the compressor system will
experience wear and tear, so in order to keep an optimum performance, it should be maintained.

3.) Energetic Consumption Costs – What is the cost of running the equipment? A simulation of
how much the Air Compressor will cost to run. This depends first and foremost on the
performance of the compressor and is typically measured by the number of kW needed to
compress 1 m3/min of air. This is known as the compressors Specific Energy. The Specific
Energy can then be multiplied by the Free Air Delivery, the Operating Hours and the local cost
of electricity, to have a complete cost of running the compressor.
 Life Cycle Cost of an Air Compressor

Capex Cost = $50,000.00

Maintenance Cost = ($4,000 / year) x (5 years)

= $20,000.00

Energy Cost = (Specific Energy x Compressor FAD x

Operating Hours x 5 x Electricity Rate)
kW m3 hrs $0.2
=6.0 m3
x 15 x 8,000 x 5 yrs x
min yr kWh
min

= $720,000.00

LCC = Capex + Maintenance Cost + Energy Cost

= $50,000.00 + $20,000.00 + $720,000.00

= $790,000.00
In the pi graph shown, the sum of the Capex and Maintenance Cost is being outweighed by the
energy cost which is 91% of the Life Cycle Cost which gives us an insight that the Specific
Energy is a really important factor that should be taken into account.

Evaluation and Comparison

Compressor 2

Capex = $70,000.00

Maintenance Cost = ($4,800 / yr) x (5 years)

= $24,000.00

Energy Cost = (Specific Energy x Compressor FAD x Operating Hours x 5 x Electricity Rate)
kW m3 hrs $0.2
= 5.0 m3
x 15 x 8,000 x 5 yrs x
min yr kWh
min

= $600,000.00

LCC = Capex + Maintenance Cost + Energy Cost

= $70,000.00 + $24,000.00 + $600,000.00

= $694,000.00
There is a 12% difference in the Life Cycle Cost favoring the 2nd Compressor. With the Life
Cycle Cost calculated, an informed decision can be made and the most logical choice would be
to buy the 2nd Compresoor.

However, there is one key factor that is fundamentally incorrect which can result to a potentially
misleading decision.

Incorrect Assumption

The potential end user now believes that he has all the necessary data to make an informed
decision on which Compressor to buy and install in his plant.

Unfortunately this method relies on one key assumption that is fundamentally incorrect and can
therefore result in potentially misleading end users in their decision making process

AIR COMPRESSOR SPECIFIC ENERGY IS CONSTANT OVER TIME

Decrease in Performance

Screw Compressors

-have bearings which contribute in achieving high volumetric efficiency.

At Zero Hours = Screw Compressor is in its optimum performance

After Several Thousand Hours = The bearings in the compressor slowly wear which leads to
a decreased level of performance.
Through scientific research, it has shown that all it takes is bearing wear equivalent to one
fourteenth of the width of a human hair to lose nearly 2% in volumetric performance in a Screw
Compressor.

Now a more accurate calculation of the life cycle cost is shown in the table, taking into
account the decrease in performance of the screw compressor.
Life Cycle Cost with respect to the Standard LCC shown graphically.