LIFE CYCLE COSTING

SUBMITTED BY: SHAHNOOR SHAFI

13361
WHAT IS LIFE CYLE COST?

Life cycle cost (LCC) is cost of an asset, or its parts
throughout its life cycle, while fulfilling the
performance requirements.

Life Cycle Cost (LCC) is a economic tool which
combines both engineering art and science to make
logical business decision. This analysis provides
important inputs in the decision making process in
the product design, development and use.

HISTORY
The history of LCC began in the US Department of
Defence in the mid-1960s.

In the mid-1980s attempts were made to adapt LCC
to building investments.
STEPS FOR LIFE CYCLE COST ANALYSIS
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.
ESTIMATING LIFE-CYCLE COSTS

The life-cycle cost of an asset can be expressed by the
simple formula:

LCC = capital cost + life-time operating costs
+ life-time maintenance costs
+ disposal cost
- residual value.


LITERATURE REVIEW
ARTICLE #1
JOURNAL

ARTICLE
ELSEVIER

Life cycle cost based procurement decisions: A case study of Norwegian Defence Procurement
projects. ( 4 September 2007)
AUTHOR
Bernt E. Tysseland
IMPACT
FACTOR
No impact
RESEARCH
OBJECTIVE
What can explain that some procurement projects are still carried out and reviewed based on
initial procurement costs alone when the official policy is to apply the life cycle cost approach?
RESEARCH
MODEL
Dependent variable:
-Use of LCC.
Independent varibles:
- Project uncertainty
- Attitude towards LCC
- Information symmetry
- Knowledge of LCC
RESEARCH
DESIGN

DATA
ANALYSIS
The measuring instrument of choice is a questionnaire with a sample size of 150 respondents.


Hypothesis testing using SPSS
Regression Analysis on cost elements
Anova
CONCLUSION
- If the project uncertainty is high the project board would be more informed about the use of
LCC.
- The positive attitude of the project leader will positively affect the use of LCC.
- It is very likely that information symmetry
between the principal and the agent really makes a unique contribution to the use of LCC.
- Lack of knowledge is reason why LCC is not used.
ARTICLE #2
JOURNAL

ARTICLE
ELSEVIER

The life cycle costing (LCC) approach: a conceptual discussion of its usefulness for
environmental decision-making. 16 October 2003

AUTHOR Pernilla Glucha, Henrikke Baumann
IMPACT
FACTOR
No impact
ABSTRACT The purpose of this article is to discuss theoretical assumptions and the practical
usefulness of the LCC approach in making environmentally responsible investment
decisions. LCCs monetary unit and extended scope may speak in favour of using
LCC but LCC fails to handle irreversible decisions, neglects items that have no
owner and does not consider costs to future generations.
To handle these inconsistencies in future development of environmental decision
support tools three research solutions are proposed.
CONCLUSION - In order to raise the decision makers trust in the results from LCC, the availability
and reliability of data must be secured.
- Extend the system boundaries by complementing LCC-oriented tools with tools
that focus on physical measures.
- Improve the understanding of environmentally related decision-making and use
of tools.
ARTICLE #3
ARTICLE EduBuilding: Material Selection from Life Cycle Costing Sensitivity. 2010
AUTHOR Mat Noor N. A.
Chris Eves
IMPACT
FACTOR
NO IMPACT
ABSTRACT The purpose of this research is to examine the Life Cycle Cost Analysis on
building floor materials. By implementing the life cycle cost analysis, the true
cost of each material will be computed projecting 60 years as the building
service life and 5.4% as the inflation rate percentage to classify and appreciate
the different among the materials. The analysis results showed the high impact in
selecting the floor materials according to the potential of service life cycle cost
next.
HYPOTHESIS The hypothesis of this research is that a low initial capital cost of a material will
result in a life cycle cost higher than the cost benefit of the initial purchase.

Initial Capital Cost = LCCA Cost Benefit
CONCLUSIO
N
A low life cycle cost material may not be suitable for the requirements associated
with an educational asset. Materials characteristics and properties must be
considered before selecting any flooring material. Life cycle cost quantitative
results should only be used as partial indicators and not a final decisive tool for
the selection of interior flooring surfaces.
ARTICLE #4
ARTICLE LIFE CYCLE COST CALCULATION: MODELS FOR BUILDINGS.
2005
AUTHOR Erika Levander, Jutta Schade and Lars Stehn
IMPACT
FACTOR
No impact
ABSTRACT Most commonly, production cost is the main cost factor in
construction and is often set to the minimum, which does not
necessarily improve the lifetime performance of buildings.
However, a higher production cost might decrease total life cycle
cost (LCC). This paper presents a state of the art analysis in the
area of LCC for construction. The paper also reveals the primary
data which are required to carry out a LCC analysis and
discusses limitations in the application of life cycle costing from
the clients perspective.

CONCLUSION The choice of the right calculation method for LCC is easy and
obvious if the advantages and disadvantages are appreciated. If
LCC is adopted as a decision making tool. The lifetime quality
and the cost effectiveness of buildings would improve by using
LCC in the early stage design.
ARTICLE #5
ARTICLE A method-based survey of life cycle costing literature pertinent to infrastructure
design and renewal. 2005
AUTHOR Paul N. Christensen, Gordon A. Sparks, and Kent J. Kostuk
IMPACT
FACTOR
No Impact
ABSTRACT Motivated by Canadas infrastructure crisis, the Intelligent Sensing for Innovative
Structures (ISIS) Canada Research Network has developed and demonstrated the
efficacy of innovative materials and monitoring technologies to support
infrastructure design and renewal efforts. The purpose of this paper is to review
and broadly classify LCC methods evident in relevant literature.
RESEARCH
DESIGN
Structured interview & observation
CONCLUSION By following through the iterative method of LCC, both engineers and, most
importantly, their customers can be reasonably assured that the design ultimately
selected and pursued will deliver the required performance at minimum life cycle
cost. The iterative method of LCC addresses uncertainty through explicit
inclusion of sensitivity and risk analyses. Also, it acknowledges and addresses
the complexity of the design process.
IMPLEMENTATION IN PAKISTAN
There are no direct or indirect traces as to where LCC is
implemented in Pakistan.

This may be due to:
insufficient knowledge,
perception of managers that LCC analysis is too
complicated.
lack of quality training in Pakistan
There is often limited cooperation between clients and
suppliers



LIMITATIONS TO LIFE CYCLE COST ANALYSIS
lack of uniform practices, common approaches and
measures,
difficulties in defining some of the cost factors,
difficulties in evaluation of the effects of the
changes in a products operational conditions,
too many factors of uncertainty, and
poor quality of data from suppliers and lack of
comprehensive data for products performance in
the operational phase.

LCC FOR PRODUCERS AND CUSTOMERS
By using LCC, product suppliers can optimize their
design by evaluation of alternatives and by
performing trade-off studies.

By using LCC, customers can evaluate and
compare alternative products. They can also
assess economic viability of projects or products.

THANK YOU