Life Cycle Cost

A Case Study Of Light Bulbs

By: Huzaifa Sajid

College Of Electrical And Mechanical
Engineering, NUST, Pakistan

4/16/15

Life Cycle Costing (LCC)

Life cycle costing, LCC, is the process
of economic analysis to asses the
total cost of ownership of a product,
including its cost of installation,
operation, maintenance, conversion,
and/or decommission.

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

4/16/15

Why Use LCC?

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

4/16/15

Why Use LCC?

Project
Engineering

Maintenance
Engineering

Industry

Shareholders

Accounting

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

Production

Reliability
Engineering

4/16/15

Why Use LCC?

Project Engineering wants to minimize capital costs as
the only criteria
Maintenance Engineering wants to minimize repair
hours
Production wants to maximize uptime hours
Reliability Engineering wants to avoid failures
Accounting wants to maximize project net present value
Shareholders want to increase stockholder wealth
College Of Electrical And Mechanical
Engineering, NUST, Pakistan

4/16/15

Why Use LCC?

LCC can be used as a management
decision tool for synchronizing the
divisional conflicts by focusing on facts,
money, and time.

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

4/16/15

Life Cycle Cost Calculation

Approaches

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

4/16/15

Deterministic Approach
An Exact Cost is Determined

Probabilistic Approach
A range of Values is determined with a specific probability
distribution.
College Of Electrical And Mechanical
Engineering, NUST, Pakistan

4/16/15

Deterministic Approach
Fixed discrete values are assigned to
various parameters and any type of
uncertainties are ignored
LCC calculated is fixed value

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

4/16/15

Probabilistic Approach
Cost parameters are assigned with
some appropriate probability
distribution.
Random numbers are generated
These random numbers are used to
calculate the LCC

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

4/16/15

10

Calculating the total

Life Cycle Cost

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Engineering, NUST, Pakistan

4/16/15

11

Costs Involved

Initial Cost (Cic)

Delivery and Installation Costs (Cinst)
Energy Cost (Ce)
Operational cost (Co)
Maintenance Cost (Cm)
Downtime Costs (Cs)
Decommissioning/disposal costs (Cd)

Formula

LCC = Cic + Cinst + Ce + Co + Cm + Cs +

Cd
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Engineering, NUST, Pakistan

4/16/15

12

Case Study of a light bulb

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Engineering, NUST, Pakistan

4/16/15

13

Case Study of a light bulb

Suppose there is a company which wants to buy light
bulb for one of its offices. And they want the bulb to work
for 10,000 hours.
Now there are two possibilities for the company.
1) to buy 100 watt incandescent bulb.
2) to buy 25 watt compact fluorescent bulb.
Now the task for the economist is to
calculate the LCC of both
alternatives and decide
which one is better for
the company.
College Of Electrical And Mechanical
Engineering, NUST, Pakistan

4/16/15

14

Case Study of a light bulb

The costs of a light bulb can be divided
into two main categories
1)Initial cost
2)Operational and maintenance costs

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Engineering, NUST, Pakistan

4/16/15

15

LCC for incandescent bulb

Initial cost:
Cost of one bulb:

Rs 35

Life expectancy of one bulb:

1,000 hours

# of bulbs needed to burn for

10,000 hours:
10
Total Payment to light the
bulb for 10,000 hours:

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Engineering, NUST, Pakistan

Rs 350

4/16/15

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LCC for incandescent bulb

Operational and maintenance cost:
Hours required to use one kilowatt
of electricity for a 100 watt bulb:
(1,000 100) = 10 hours
kWh of electricity in 10,000 hours: (10,000 # of hours) = 1,000
kWh
Total cost of electricity used:
(supposing that 1 kWh costs Rs 160):

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

(160 x 1,000) = Rs 16,000

4/16/15

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LCC for compact fluorescent bulb

Initial cost:
Cost of one bulb:

Rs 1500

Life expectancy of one bulb:

10,000 hours

# of bulbs needed to burn for

10,000 hours:
1
Total Payment to light the
bulb for 10,000 hours:

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

Rs 1,500

4/16/15

18

LCC for compact fluorescent bulb

Operational and maintenance cost:
Hours required to use one kilowatt
of electricity for a 25 watt bulb: (1,000 25) = 40 hours
kWh of electricity in 10,000 hours: (10,000 # of hours) = 250 kWh
Total cost of electricity used:
(supposing that 1 kWh costs Rs 160):

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

(160 x 250) = Rs 4,000

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LCC of both alternatives

LCC = initial cost + operational and maintenance
cost
Alternative

Initial Cost

LCC

Rs 350

Operational and
maintenance
cost
Rs 16,000

Incandescent
Bulb
Compact
Fluorescent Bulb

Rs 1,500

Rs 4,000

Rs 5,500

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Engineering, NUST, Pakistan

Rs 16,350

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Analysis
It can be seen from the calculations, that the
operation and maintenance costs of the bulbs are far
more that their initial costs

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Engineering, NUST, Pakistan

4/16/15

21

Analysis
The analysis shows:
initial cost of incandescent bulb machine is much lower.
But, the long term LCC is much lower for compact
fluorescent bulb.

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

4/16/15

22

Conclusion
The compact fluorescent bulb is Rs 10,850 less
expensive over its life than the Incandescent bulb.
Hence a good economist would prefer compact
fluorescent bulb for his company to buy for long term
use because it would prove to be more economic in
long run.

College Of Electrical And Mechanical

Engineering, NUST, Pakistan

4/16/15

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References
1. http://en.wikipedia.org/wiki/Life_cycle_cost_analysis
2. http://www.coned.com/KIDS/pdf/coned_lightbulbs.pd
f
3. http://www.slideshare.net/ankurbansal177/life-cycle-c
ost-analysis-15005487?qid=86718d3c-0adf-4ca3-b85a-8b1
58d429568&v=qf1&b=&from_search=4
4. http://www.slideshare.net/nirjhar_jgec/life-cycle-cos
t-analysis?qid=86718d3c-0adf-4ca3-b85a-8b158d429568&v
=qf1&b=&from_search=1
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Engineering, NUST, Pakistan

4/16/15

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