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Ch4 LifeCycleCosting 1

LifeCycleCosting

Dr

Nick

Hastings

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IceBergDiagram

Ch4 LifeCycleCosting 2

Ref: B. Blanchard,

Logistics

Engineering and

Management,

Prentice-Hall, 1992.

AcquisitionCost

Operating Cost

Maintenance CostSpares Cost

Supporting Facilities Cost

Software Cost

Training cost

Poor management

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LifeCycleCosting Aims

To avoid nasty surprises down the track;

To make the best overall decisions and budgetprovision for:

equipment acquisition,

operation,

through-life-support, disposal,

Ref: Standards Australia AS4536 Life Cycle Cost

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TowardsaUnifiedLCCFrameworkDr. Lyle Turner, CIEAM, April 2008

Identified approximately 40 leading references on LC

Highlighted four different approaches to costing withitechniques;

Outlined strengths and weaknesses in existing techni

Indicated potential improvements in the ANZ Standar

Concluded that LCC is of most benefitinterpreted within the overall management framewthe asset, and it is the authors opinion that this fcommonly understated when demonstratingadvantages of LCC.

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InputstoCapability NetCost

Operatorsand

operations

Utilities e.g.Power

Water

Environ-

ment

Health and

Safety

PrimeMission

Equipment

Logisticsupporte.g.

spares

Facilitiese.g.

BuildingsRoads

SupportServices

e.g.Catering

Management

Personnel,Financial

Communic-ations and

I.T.

Maintenanceand

Engineeringsupport

Training

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PersonnelActivities Net

CostBusinessAnalysis

andPlanning

Operationsmanagement,

planning andstaffing

Tenderingand

Contracting

Health,Safety and

EnvironmenAnalysis

SeniorDecisionMaking

IT andancillary

staff

ProjectManagement

MaintenanceStrategy and

Planning

Recruitment

Design,Engineering FinancialAnalysis

Trainingdevelopmen

and deliver

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LifeCycleCostingExampleCircuit

BreakerBay

Ch4 LifeCycleCosting 7

An electricity transmission company is planning to install a new substation bay.

The following item costs have been estimated.

Create a spreadsheet summary of costs year by year over the 30 year life.Decide the year in which various costs are incurred.

Calculate the net present value of the total cost, and the equivalent annual

cost, assuming a real interest rate of 4%.

Initial engineering analysis and planning $30,000

Acquisition project and vendor selection $35,000

Installation project planning and management $45,000

Roads, paths, ducts, supports and fences $75,000

Main switchgear $950,000

Secondary wiring and controls $125,000Installation and commissioning $65,000

Documentation $10,000

Initial spares and consumables purchase $45,000

Maintenance annual incl. spares and consumables $3,000

Maintenance 3 year cycle incl. spares and consumables $6,000

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LCCforCircuitBreakerbay

1234

5

67

8910

111213141516

171819202122

23

A B C D E F G H I J K

Year -1 0 1 2 3 4 5 6 7 8

Real rate of interest 4.00%

Discount factor 1.04 1.000 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731

Prior year

Initial engg analysis & planning

30

Aquisition project + vendorselection 35

Year zero

Installation plan & mgmt 45

Roads, paths,ducts, 75

Main switchgear 950

Secondary wiring & controls 125Installation and commissioning 65

Documentation 10

Initial spares & consumables 45

Maintenance

Annual maint 3 3 3 3 3 3 3 3

3 year cyclic maint 6 6Upgrade

Disposal

Totals 65 1315 3 3 9 3 3 9 3 3

NPV 1619

EAC 94 8

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AssetManagement

Flowchart

Ch4 LifeCycleCosting 9

Requirements

Analysis

Acquire

Asset

OperateMonitor Maintain

Business

need oropportunity

Logisticsupport

Businessand

Technicalreview

Install

Disposal

Financial

plan

Renewal

Profit or

Service

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ConclusionIntegration of LCC into overall

asset management planningframework:

Awareness by top

management;Requirements stage;

Feasibility analysis stage;

Acquisition stage;

Logistic support;

Renewal.

Skidoo in

Antarctica:Logisticsupportessential.