How life cycle cost analysis increases the value of your organization

Asset Lifecycle Cost is one of many asset management tools designed to assist organizations in their decision making process for all existing assets.

This tool encompasses all stages of an asset’s life, from design and manufacturing to maintenance, dismantling and recycling.

The idea behind a Lifecycle Cost (LCC) tool is to improve performance and reduce asset costs, but also to make the right decisions regarding the replacement of older assets, i.e. to make appropriate and information-based decisions and investments. Naturally, LCC models are complex because they take into account many unknown variables. Nevertheless, it is possible to illustrate the principle with a simplified example:

When using an LCC tool, it is important to consider the organization’s future strategic planning: without a clear destination, the tool will not be able to function and provide accurate information to guide decision making. Thus, when considering replacing a problem-prone asset, an organization would be well advised to perform a LCC analysis to avoid making a bad decision.

Let’s assume that the asset in question was originally intended to operate for 5 to 7 years. In this case, it is unavoidable to take into account the investment costs of its acquisition and the operational costs foreseen for its maintenance during 5 to 7 years. Therefore, options to improve performance and reduce costs associated with this asset must be less than the total calculated costs (capital and expected operating costs). Subsequently, various options can be considered and developed, such as reallocating resources to improve the current asset, replacing or improving problematic or critical components, reorganizing a production process (minor changes), revising the asset in question/implementing optimized maintenance strategies, etc.

The list of possible options is long, and various other types of asset management tools can help you develop these solutions: Overall Equipment Effectiveness, Root Cause Analysis (RCA), Reliability Centered Maintenance (RCM), etc. Combined with the LCC, your organization will be able to quantify the cost savings and performance improvements that can be achieved by considering each option against the existing solution and especially the replacement option, which seemed most compelling at first, prior to an LCC review.