How Lifecycle Cost Analysis (LCC) adds value to your organization

23 September 2021

Asset Lifecycle Cost is one of many different asset management tools, designed to help organizations in their decision-making process with respect to all existing assets.

This tool encompasses all stages of an asset life from design, conception, and manufacturing to maintenance, decommissioning, and recycling.


The idea behind an asset lifecycle cost tool is to improve performance and reduce costs of assets, but also make the right decisions with respect to the replacement of older assets, i.e. taking appropriate and information-based decisions and investments. Naturally, LCC models are complex since they account for numerous unknown variables. Nonetheless, it is possible to illustrate the principle by the means of a simplified example:





When using an LCC tool it is important to consider the strategic future planning of the organization: without a clear destination, an LCC tool will not be able to perform and provide accurate insights that’ll drive the decision-making. Thus, when considering the replacement of an asset prone to problems, an organization would be well advised to carry out an LCC analysis to avoid making the wrong decision.


Let’s assume the asset in question had initially been planned to operate for 5 – 7 years. In that case, it is inevitable to consider the capital costs of its acquisition and the anticipated operational costs for its maintenance for 5 – 7 years. Correspondingly, options to improve the performance and decrease the costs linked to this asset, have to be lower than the calculated total costs (capital and anticipated operational costs). Next, different options can be considered and worked out, such as the reallocation of resources to improve the current asset, the replacement or improvement of troublesome or critical components, the remodulation of a production process (minor changes), the overhaul of the asset in question/implementation of optimized maintenance strategies, etc.


The list of possible options is long and different other types of asset management tools can help you work out these solutions: Overall Equipment Effectiveness (OEE), Root Cause Analysis (RCA), Reliability Centered Maintenance (RCM), and more. Combined with LCC, your organization will be able to quantify the cost savings and performance improvements, which can be achieved by considering each option in comparison to the existing solution and especially the option of a replacement, which seemed most compelling at the beginning, prior to an LCC examination.

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