SINTEF REPORT

TITLE

SINTEF Industrial Management

Safety and Reliability Life Cycle Cost Analysis in Railway Systems
Address: N-7034 Trondheim,
NORWAY
Location: Strindveien 4
Telephone: +47 73 59 27 56
Fax: +47 73 59 28 96
AUTHOR(S)
Enterprise No.: NO 948 007 029 MVA
Per Hokstad
CLIENT(S)

EEC DG7 (Transport)

REPORT NO. CLASSIFICATION CLIENTS REF.

STF38 A98424 Unrestricted Jens Olsen

CLASS. THIS PAGE ISBN PROJECT NO. NO. OF PAGES/APPENDICES

Unrestricted 82-14-00450-0 384063 44

ELECTRONIC FILE CODE PROJECT MANAGER (NAME, SIGN.) CHECKED BY (NAME, SIGN.)

LCC SINTEF rapport.doc Knut ien Jrn Vatn

FILE CODE DATE APPROVED BY (NAME, POSITION, SIGN.)

384063 1998-08-27 Lars Bodsberg, Research Director

ABSTRACT

A model for Life Cycle Cost (LCC) analysis of railway systems is presented. The model is rather simple,
as e.g.
- the discount factor is constant through the lifetime
- the yearly costs (maintenance, operation etc) are fixed over the lifetime
- disposal cost of equipment by end of its life cycle is not included
The approach focuses on comparison between two options, in order to provide reasonable estimates of
the LCC difference (for use as decision support).

A flexible method for data collection, applying a questionnaire that allows data to be provided at various
levels of detail is also provided.

An example is given, comparing the LCC of turnouts when 1) standard maintenance is applied, and 2) a
specific condition monitoring equipment is implemented for the turnouts.

KEYWORDS ENGLISH NORWEGIAN

GROUP 1 Reliability Plitelighet

GROUP 2 Maintenance Vedlikehold
SELECTED BY AUTHOR Life Cycle Cost Levetidskostnader (LCC)
Railway Jernbane
222

PREFACE
This report presents some of the work carried out by SINTEF in the project REMAIN
(Modular System for Reliability and Maintainability Management in European Rail
Transport), carried out for the European Commission 1996-1998. In addition to SINTEF
Industrial Management, the REMAIN consortium consisted of another applied research
organisation, two of the major European railway companies, a public transportation
operation, a manufacturer of infrastructure and signalling equipment, and a software
house:

Fraunhofer Institut fr Informations- und Datenverarbeitung (IITB); project co-

ordinator
Deutsche Bahn AG (DB-AG)
Red Nacional de los Ferrocarriles Espanles ( RENFE)
Ilektriki Sidirodromi Athinon Pireos (ISAP)
VAE Aktiengesellschaft (VAE)
Ambit Ergo Systems A.E. (Ambit)

As an example the project considered a concept for condition monitoring for turnouts,
denoted Roadmaster 2000 (R2000), developed by VAE. So, to exemplify the use of
LCC analysis, the present report compares the LCC of turnouts when

1. standard maintenance (without special condition monitoring equipment) applies, and

2. the condition monitoring equipment R2000 is implemented.

We will thank VAE for valuable information on the R2000 system, and RENFE, ISAP
and DB-AG for providing various input data to the analysis. In the present report these
data are anonymised.
 3

TABLE OF CONTENTS

1. INTRODUCTION ................................................................................................................. 5
1.1 Objectives of the Report .................................................................................................. 5
1.2 Structure of the Report..................................................................................................... 5
1.3 Definitions ....................................................................................................................... 6
1.4 List of abbreviations ........................................................................................................ 6
2. LCC MODEL ........................................................................................................................ 8
2.1 Standards for LCC Modelling.......................................................................................... 8
2.2 LCC Modelling Aspects .................................................................................................. 9
2.2.1 Principles of LCC breakdown .......................................................................... 9
2.2.2 Breakdown into Cost Categories .................................................................... 10
2.2.3 Physical Breakdown Structure........................................................................ 12
2.2.4 The Life Cycle and cost discounting .............................................................. 13
2.2.5 How the Task Objective Influences the Model Selection. ............................. 14
2.3 Investment Cost Model.................................................................................................. 14
2.4 Maintenance and Operating Cost Model ....................................................................... 15
2.4.1 General............................................................................................................ 15
2.4.2 Corrective maintenance cost........................................................................... 15
2.4.3 Calendar based preventive maintenance cost ................................................. 16
2.4.4 Condition based preventive maintenance cost................................................ 17
2.4.5 Administration cost......................................................................................... 17
2.4.6 Energy consumption cost................................................................................ 17
2.4.7 Disposal cost................................................................................................... 17
2.5 Delay Cost Model .......................................................................................................... 17
2.6 Hazard Cost Model ........................................................................................................ 18
2.7 Simplified case for discounting of cost contributions ................................................... 19
2.8 Main features of the REMAIN model ........................................................................... 20
2.9 Use of LCC in the acquisition of new railway equipment............................................. 21
2.9.1 General approach for acquisition.................................................................... 21
2.9.2 Contractual requirements and verification...................................................... 22
2.9.3 Benefits of using LCC .................................................................................... 23
3. LCC ASSESSMENT OF DEMONSTRATOR APPLICATION.................................... 25
3.1 General approach ........................................................................................................... 25
3.1.1 System breakdown.......................................................................................... 25
3.1.2 Cases to be considered.................................................................................... 25
3.1.3 Basic assumptions........................................................................................... 26
3.2 LCC of a high speed line (Case A) ................................................................................ 26
3.2.1 General data .................................................................................................... 27
3.2.2 Investment Cost Data...................................................................................... 27
3.2.3 Maintenance and Operating Cost Data ........................................................... 27
3.2.4 Annual Delay and Hazard Costs..................................................................... 28
3.2.5 LCC results for case A.................................................................................... 28
3.3 LCC of an inter-city line (Case B)................................................................................. 30
3.3.1 Input data ........................................................................................................ 30
3.3.2 LCC for Case B .............................................................................................. 31
 4

4. COST EFFECTIVENESS OF THE CONDITION MONITORING CONCEPT......... 32

5. REFERENCES .................................................................................................................... 35
6. APPENDIX. Questionnaire for LCC input data.............................................................. 36
 5

1. INTRODUCTION

1.1 Objectives of the Report

The main objectives of the report are to:

1) Provide an LCC model to be used in the overall economic evaluation of railway

equipment (the "product"), with focus on the possibility of making cost
comparisons of different options.

2) Present an application of the method on the demonstrator turnouts by

performing a system decomposition
providing input data
performing the LCC calculations, both with and without the inclusion of
dedicated condition monitoring equipment.

3) Provide overall judgements regarding the cost effectiveness of including condition

monitoring equipment for turnouts.

1.2 Structure of the Report.

The report is divided into the following parts:

Model for cost evaluation

Chapter 2 presents the LCC model to be used in the overall economical
evaluation, splitting costs into
Investment Cost
Maintenance and Operating Cost
Delay Cost (unavailability costs related to trains being delayed)
Hazard Cost (costs related to hazardous/accidental events)

LCC assessment of demonstrator application

The cost assessments for the demonstrator application (turnouts) are presented in
Chapter 3, giving

System Breakdown
Input cost data
LCC calculations based on the model described in Chapter 2

Costs are assessed both for a standard system (i.e. reference system with no
condition monitoring), and for a modified system, which includes condition
monitoring equipment. There is a focus on estimating the cost differences of the
two systems.

Overall considerations as to the cost effectiveness of condition monitoring of

railway turnouts (sensitivity analysis).
 6

Based on the quantifications performed in Chapter 3, it is judged to what extent

the suggested condition monitoring equipment for turnouts are cost effective (see
Chapter 4).

1.3 Definitions
Definitions of a few basic concepts are given below. These are based on IEC 300-3-3-
Part 3, Section 3: Life cycle costing (IEC), and the NORSOK Standard: Common
requirements Life Cycle Cost.

Life Cycle (IEC): Time interval between product conception and its disposal

Life Cycle Cost: The total cost to the user of the purchase and installation, and the use
and the maintenance during the life cycle (IEC gives the shorter version: "Cumulative
cost of a product over its life cycle".)

Dependability (IEC): A collective term is used to describe the products availability

performance and its influencing factors, i.e. reliability performance, maintainability
performance and maintenance support performance.

1.4 List of abbreviations

The following abbreviations are used in this report.
General:
CM Corrective Maintenance
CON CONdition Monitoring
CONSYS System (turnout) with the inclusion of CON equipment/product
DEL Delay Cost (over life cycle)
HAZ Hazard Cost (over life cycle)
IEC International Electrotechnical Committee
INV Investment cost of the system or equipment/product (primary
investment)
LCC Life Cycle Cost
MAIN Maintenance and Operating Cost (over life cycle)
NORSOK NORSOK Standard, LCC
PM Preventive Maintenance
RCM Reliability Centered Maintenance
REFSYS Reference system (turnout) without condition monitoring
TC Technical Committee (within IEC)

Investment:
AIC Annual Investment Cost (i.e. split on total life cycle)
EPC Equipment and Material Purchase Cost
ENC Engineering Cost
INC Installation Cost
ISPC Initial Spare Parts Cost
ITC Initial Training Cost
DIC Disposal and reinvestment Cost
 7

Maintenance/operation:
ADC Annual Administrative Cost
AMC Annual Maintenance and Operating Cost
CONC Annual CONdition based monitoring Cost
CMC Annual Corrective Maintenance Cost
ECC Annual Energy Consumption Cost
MHR The Man-Hour Rate for maintenance
PMC Annual calendar based PM Cost

Delay:
ADC Annual Delay Cost
LDC Long term Delay Costs
NLD Number of Long term Delays per year
NSD Number of Short term Delays per year
SDC Short term Delay Costs

Hazard:
AHC Annual Hazard Cost
HEC Hazardous/accidental Event Cost
NHE Number of Hazardous/Accidental Events per year

Discounting:
t0 Base year. All costs are discounted back to this year
t1 The year for start of operation ( t0)
n Lifetime. The number of years from t0 until disposal of the
product/equipment
m The number of years in operation (from t1 until year of disposal),
= n - (t1-t0).
k Annual rate of return (interest rate minus rate of inflation)

Some further abbreviations are used "locally" in the LCC model, e.g. see the
maintenance models, Sections 2.4.2-2.4.4.
 8

2. LCC MODEL

The objective of this chapter is to present and discuss a model for cost evaluation to be
used in the overall economical evaluation of railway equipment.

The chapter is divided into nine sections, which comprise the following:

Standards for LCC modelling. Section 2.1 presents and discusses the status with
respect to international standards on LCC. The standards form the basis for the
modelling of acquisition cost.

LCC modelling aspects. Section 2.2 presents the suggested overall breakdown of the
total LCC into various categories.

Investment cost model. The suggested capital cost model is presented in Section 2.3.

Maintenance and operating cost model. The operating /maintenance cost model is
presented in Section 2.4..

Delay cost model. The suggested unavailability (i.e. delay) cost model is presented in
Section 2.5.

Hazard cost model. The cost inferred by accidental events (rebuilding, clean-up,
personal injuries, environmental threats) is presented in Section 2.6.

The simple formula for discounting, used in the present report, is summarised in
Section 2.7.

Main features and limitation of the REMAIN LCC model is presented in Section 2.8.

The practical use of LCC models in the acquisition of new equipment for railway
companies is shortly discussed in Section 2.9, essentially based on reported
experience with the acquisition of the high speed train X2000 to the Swedish State
Railway.

2.1 Standards for LCC Modelling

As a basis for the modelling of acquisition cost, the status with respect to international
standards on LCC has been checked out. Within IEC (the International Electrotechnical
Commission), there is a technical committee working with this topic. The technical
committee is no. 56 1 (TC56) with the title Dependability. An international standard was
issued in 1996, entitled IEC-300-3-3: Dependability Management, Part 3: Application
guide, Section 3: Life cycle costing (see the reference, IEC 1996). An earlier version of
the standard is the referenced, IEC 1987.
1
It should be noted that although the TC56 is within IEC, the International Electrotechnical
Commission, it is recognised also by other standardisation bodies to cover a much wider area than the
electrotechnical within the area of dependability.
 9

SINTEF has earlier developed models for life cycle cost, ref. Lydersen and Aar (1989).
The modelling was then based on an even earlier version (committee draft) of the IEC
standard (ref. IEC, 1987). The referred SINTEF-work based the LCC-modelling on the
breakdown of the LCC given in the 1987 document. In the newer versions of the IEC
documents, this suggested breakdown structure has been taken out, and the scope of the
standard is to provide guidance on the general application of the LCC concept.
The NORSOK standardisation work group have issued a draft standard with the title
Life Cycle Cost for Production Facility, reference number O-CR-002 (NORSOK,
1995). The standard is based on P-CR-002 Common Requirements - Life Cycle Cost
(NORSOK, 1994), which present general aspects with respect to the calculation of LCC.
Hence, the focus in this report will be on the requirements in O-CR-002, which give
more detailed information regarding the LCC modelling for production facilities. The
scope of O-CR-002 is to standardise LCC calculation methods necessary to establish
the facility design that gives the maximum return on investment. The suggested model
for breakdown in cost elements in the NORSOK standard will be used as the basis for
the economic evaluations in this report.
There are no conflicts between the suggested LCC breakdown structure given in the IEC
documents and in the NORSOK standard. The NORSOK breakdown structure is
however preferred as the basis for the present application.

2.2 LCC Modelling Aspects

This Section presents an overview of the LCC model, adapted to railway applications.

2.2.1 Principles of LCC breakdown

In order to obtain the total life cycle cost, it is necessary to break the total cost down into
a series of cost elements that together make up the total (i.e. a cost work package). These
elements should be such that they could be individually assessed. As stated in IEC
(1995), the identification of the elements and their individual scopes will need to be
determined for the specific exercise. In IEC (1996) an approach is given which breaks
down the total cost along three axes:

Cost category (who): The cost category of applicable resources such as labour,
materials, fuel/energy, overhead, transportation/travel, etc.

Product/work breakdown structure (what): Breakdown of the product to lower

indenture levels.

Life cycle phase (when): The time in the life cycle when the work/activity is to be
performed.

For the present purpose, we suggest to essentially apply the first two of these axes. The
costs are first split into cost categories, which provides a general structure applicable for
all products. The product/work breakdown is in the following denoted physical
breakdown of the equipment, and must of course be carried out individually for each
type of equipment.
 10

The third axis: life cycle phases (Figure 2.1) will also (indirectly) be accounted for as the
cost categories will distinguish between

1. investment costs (prior to start of operation) and

2. maintenance/operating and "risk" costs occurring regularly during operation

(all costs being discounted to a chosen "base year", see Section 2.2.4). Note that disposal
(removal and recycle) cost and reinvestment cost will not be included in the present
model, assuming that these will not distinguish significantly between various options
(and since also data could be difficult to obtain for these costs).

Figure 2.1 Use of LCC in various project phases (from IEC).

In Sections 2.2.2 and 2.2.3 below, the categorisation of the first two breakdown axes are
discussed. Section 2.2.4 presents formulas for the discounting of costs. Section 2.2.5
concludes with a discussion on how the objective of the cost evaluation affects the LCC
model to be applied.

2.2.2 Breakdown into Cost Categories

The classification into cost categories (see Figure 2.2) is based on the breakdown
structure of the total LCC suggested in NORSOK. According to NORSOK (1995) the
total LCC can be divided into three major areas, capital cost, operating cost and
deferred production. Here we use the term Investment cost rather than capital cost, to
separate all costs prior to start of operation. As operating cost is mainly maintenance
 11

cost, we here refer to this as the maintenance. Further, the cost of deferred production
could more generally be referred to as (production) unavailability cost, which in the
present railway application essentially equals the delay cost. Finally, we include Hazard
cost (costs related to accidents). Hence the total LCC equals

LCC = CostInvestment + CostMaintenance + CostDelay + CostHazard

or, (cf. Figure 2.2)

LCC = INV + MAIN + DEL + HAZ

Observe that the sum of the delay cost and the hazard cost could be referred to as the
risk cost, and an alternative could be to split LCC into the three main categories: 1)
investment, 2) maintenance/operation and 3) risk. Actually, IEC also split into just two
main categories: 1) acquisition cost (or investment cost) and 2) cost of ownership (or life
support cost). In the notation of the present report the cost of ownership equals MAIN +
DEL + HAZ, see Figure 2.2. The LCC model, based on the cost breakdown of Figure
2.2, will be presented in Sections 2.3-2.6.

LCC Categories

LCC

Life Cycle Cost

INV MAIN DEL HAZ

Maintenance and
Investment Cost Operating Cost Delay Cost Hazard Cost

Equipment and Material Corrective Short Term Human Safety Cost

Purchase Cost Maintenance Cost Delay Cost Environmental
Engineering Cost Calendar based Long Term Threat Cost
Installation Cost PM Cost Delay Cost Cleaning Cost
Initial Spares Cost Condition based Rebuilding Cost
Initial Training Cost PM Cost
Disposal and Operating Cost
Reinvestment Cost Energy
Consumption Cost

Figure 2.2 LCC breakdown into cost categories.

 12

2.2.3 Physical Breakdown Structure

As discussed in Section 2.2.2, also a physical breakdown of the product
(equipment/system) under analysis is required. As an alternative to physical breakdown,
the work breakdown structure could have been used, but the physical breakdown
structure is regarded more appropriate for the present application.

The level of appropriate physical breakdown could be a matter of concern. Note that the
overall level of detail must be sufficient to cover all four cost categories of Figure 2.2.
However, a different degree of breakdown level could be used for the various cost
categories.

Given an appropriate physical breakdown of the product ("system") into subsystems A,

B, C,... , see Figure 2.3, the overall LCC breakdown will be as indicated in Table 2.1.
Note that special support and test equipment should be included as a specific subsystem.

Physical breakdown

SYSTEM

Subsystem Subsystem Subsystem

A B C

A1 B1 C1
A2 B2
B3

Figure 2.3. Example of physical breakdown of equipment (i.e. "product")

Table 2.1. LCC breakdown according to cost category and physical breakdown
(with illustrative numbers)
Cost Physical breakdown Sum
Category Subsystem A Subsystem B Subsystem C
INV 10 000 2 000 500 12 500
MAIN 5 000 1 100 400 6 500
DEL 1 000 400 100 1 500
HAZ 500 - - 500
Sum 16 500 3 500 1 000 21 000
 13

2.2.4 The Life Cycle and cost discounting

The Life Cycle of the product, is defined (IEC) as the interval between product
conception and its disposal. The LCC is the predicted total cost over this period.

Some time instants must be defined:

t0 = Base year. All costs are discounted back to this year

t1 = The year for start of operation (>t0)
m = The number of years in operation.
n =Lifetime. This equals the number of years from t0 until disposal of the
product/equipment ( = t1-t0+m)

In a simplified analysis, suggested in the present report, we let t0 = t1-1, discounting all
costs to the year prior to the start of production (i.e. operation of the line).

Discounting formula
Let

St = Net cost during year no. t after t0. Note that all costs are measured in real terms,
using base-year prices. All payments are made (say) in the middle of the year in
question.

k = The annual rate of return to be used for the assessments. This shall here be given as
the difference between the interest rate and the inflation rate (this interpretation
represents a slight approximation).

Then the discounted cost of year t (=net present value) equals St / (1+k)t. Here t = 0
corresponds to the base year itself.

Any cost, St , made t years after t0 shall be discounted back to the base year to take into
account the time value of money, giving the following total discounted cost over the life
cycle
n

S ( 1+ k )
t
t
t =0

In a simplified analysis we could ignore disposal and reinvestment cost. In that case we
consider an idealised model where all investment costs are restricted to occur in the
years from t0 to t1-1 prior to operation. In this simplified approach, we also let the base
year, t0 = t1-1, and thus all investments are made in year 0, which is the year prior to
start of operation. This will imply that no discounting is required for the investment cost,
INV, (which simply equals the cost of "year 0", S0 ).

All other costs (i.e. MAIN, DEL, HAZ) are assumed to have constant contributions
throughout the lifetime, i.e. for year 1, up to and including year m. For these
contributions we multiply the annual costs with a discount factor f to get the total cost
over the lifetime. Thus,
 14

m
f = ( 1 + k )
t

t =1

and we get f = [1 - (1+k) )] / k. So if the annual cost is denoted S, the total discounted
-m

cost for the m years of operation is S f , that is

1 (1 + k ) m
S
k

Observe that this equals S m when k = 0.

2.2.5 How the Task Objective Influences the Model Selection.

Another important factor to take into account when the cost model is established is the
objective of the cost evaluation to be performed. In the present application there are
ideally two objectives of the cost evaluations to be performed:

To provide an evaluation of the differences in cost performance between two options

(here exemplified by considering turnouts with/without condition monitoring
equipment). These are based on rather rough cost estimates as being available in an
early phase of the development (corresponding to a typical application of LCC in the
acquisition phase).

On a more detailed level to evaluate the cost efficiency of inclusion of (part) of the
condition monitoring equipment for turnouts. Here more detailed results, as obtained
from the RCM analysis (see Vatn 1998) are utilised. Parts of this analysis go beyond
what is considered a typical LCC analysis.

The presentation of the LCC method given below is based on the first of these two
objectives (the second purpose will be handled separately in Chapter 4). From the above
it is seen that the cost model to apply here should be refined with respect to visualising
cost differences. Consequently, we do not put efforts into finding the ultimate answer
with respect to the total cost of the equipment. Rather, it is sufficient to determine quite
rough estimates of the total cost, applicable for visualising the order of magnitude of the
relative cost (differences).

2.3 Investment Cost Model

The investment cost includes of course the acquisition of the technical system (including
investment in the required maintenance equipment) but also documentation,
engineering/installation, training, spare parts and any other project-related cost (e.g.
travelling). As indicated in Figure 2.1, the Investment cost (INV) is here broken down
into the following cost elements:

Equipment and materials Purchase Cost, (EPC)

ENgineering Cost, (ENC)
INstallation Cost, (INC)
Initial Spares Cost, (ISC)
 15

Initial Training Cost, (ITC)

DIsposal and reinvestment Cost, (DIC)

Thus,

INV = EPC + ENC + INC + ISC + ITC + DIC

Note that for each category any administrative costs shall be included, when appropriate,
in addition to the capital costs. Using the physical breakdown of the system, the costs
related to the above five categories are obtained for each subsystem, adding up to give
the total investment cost of the product. To summarise, the total investment costs equal

INV = EPC + ENC + INC + ISC + ITC + DIC

2.4 Maintenance and Operating Cost Model

2.4.1 General.
The cost elements to be included in the annual maintenance and
operation/administrative cost (after start of operation) are, cf. Figure 2.2:

Corrective Maintenance Cost, (CMC)

Calendar based PM Cost, (PMC)
CONdition based PM Cost, (CONC)
ADministrative Cost, (ADC)
Energy Consumption Cost, (ECC)

These costs adds up to AMC = Annual Maintenance and operation cost:

AMC = CMC + PMC + CONC + ADC + ECC

The annual cost, AMC, should be discounted as shown in Section 2.2.4 to give the total
maintenance and operating cost over the life cycle (MAIN).

The above five cost categories are discussed below (Sections 2.4.2-2.4.6). The various
Maintenance Costs (CMC, PMC and CONC) are further split into

Man-hour cost
Spare parts consumption cost
Logistic support cost

All administrative costs and training costs related to the various maintenance activities
are included in the fourth category, ADC. (All man-hours not included in the three first
categories are included in ADC.)

2.4.2 Corrective maintenance cost

The annual corrective maintenance costs are the sum of man-hour cost (for performing
the corrective jobs), spare parts consumption cost and the logistic support cost. Let
 16

NCM = Number of failures per year requiring Corrective Maintenance (Total failure
rate)

MHCM = The number of Man-Hours required for repair (CM), total time, including
travel, fault finding, testing etc. This is given as MHC = MTTR NC, where
MTTR = Mean Time To Repair (in hours)
NC = The Number of men required to do the Corrective job (including
"safety crew")

MHR = The Man-Hour Rate for maintenance. Note that this rate includes all man-hour
costs for operator; e.g. wages, taxes, life/health insurance, facilities.

SPCM = Spare Parts cost per repair (Corrective Maintenance)

LSCM = Logistic Support cost for Corrective Maintenance per year

The annual corrective maintenance cost are then calculated from the formula

Corrective Maintenance Cost =

CMC = NCM x (MHCMxMHR + SPCM) + LSCM

2.4.3 Calendar based preventive maintenance cost

The annual calendar based PM costs are the sum of man-hour cost, spare parts
consumption cost and the logistic support cost. Let

NPM = Number of calendar based PM actions per year

MHPM = Number of Man-Hours per calendar based PM action

MHR = The Man-Hour Rate for maintenance

SPPM = Spare Parts cost for calendar based PM per year

LSPM = Logistic Support cost for PM per year

The average annual man-hours costs for calendar based PM equals

Calendar based PM Cost =

PMC = NPM x (MHPM x MHR + SPPM) + LSPM

If there are various calendar based PM actions (servicing) being performed at different
intervals, the cost related to each type of job/interval must be found individually and
summed to get the total cost. The above formula demonstrates how the cost of PM
increases when the number of PM actions increases.
 17

2.4.4 Condition based preventive maintenance cost

The annual condition based PM cost is the sum of man-hour cost, spare parts
consumption cost and the logistic support cost. Let

MHCON = Number of Man-hours for CONndition based PM per year

MHR = The Man-Hour Rate for maintenance

SPCON = Spare Parts cost for CONdition based PM cost per year

LSCON = Logistic Support cost for CONdition based PM per year

Note that included in the above costs are the costs of operating and maintaining any
condition monitoring equipment (as R2000).

Now the average annual man-hours costs for condition based PM equals

CONdition monitoring Cost =

CONC = MHCON MHR + SPCON + LSCON

2.4.5 Administration cost

The annual cost of administration, operation and training is denoted

ADC = ADministration, operation and training Cost per year

= Number of man-hours for administration/operation/training per year

x Man-hour rate for administration/operation/training

This cost includes all man-hours costs not included in the various maintenance activities
(Sections 2.4.2-2.4.4). Thus, all administration/training costs required e.g. for
maintenance are included.

2.4.6 Energy consumption cost

The annual cost

ECC = Energy Consumption Cost per year

shall include the cost of fuel required and e.g. associated CO2 tax, when relevant.

2.4.7 Disposal cost

Observe that the Disposal and Reinvestment cost (DIC) is not included in the present
model.

2.5 Delay Cost Model

Unavailability of the equipment due to failures requiring unplanned corrective
maintenance, may also infer costs related to the operation of the trains, essentially delay
costs. Note that it is here assumed that PM will not cause delay. Thus, unavailability
costs are here grouped into the following two categories:
 18

Short Term Delay Cost, i.e. costs of delays of relatively short duration (e.g. up to 30
minutes) while corrective actions are carried out. This cost is mainly that of losing
reputation (and thereby future passengers), but could also include economic
compensation to passengers if the railway company provides a guarantee on the
maximum length of a delay.

Long Term Delay Cost, i.e. cost due to any unavailability of rather long duration,
requiring certain measures to be taken by the railway company in order to be able to
get through the traffic. These costs are e.g. lost income due the cancellation of
trains, financial compensation to passengers, and the cost of alternative means of
transportation for passengers already on the delayed train.

The first cost category could be quantified by predicting the number of trains per year
that are delayed more than (say) 5 minutes by a failure requiring corrective maintenance.
The second category could be caused by accidents/incidents due to failure of the
equipment in question. The frequency of such events per year must be estimated,
together with the expected long term delay costs related to each event (other costs are to
be included in the hazard cost, see Section 2.6).

Now introducing

NSD = Number of Short term Delays per year caused by failure of "product" in
question
SDC = Short term Delay Cost (cost per delay)
NLD = Number of Long term Delays per year caused by failure of "product" in
question
LDC = Long term Delay Cost (cost per delay)

Then it follows that ADC = Annual Delay Cost is given as

ADC = NSD x SDC + NLD x LDC

This annual delay cost is discounted as shown in Section 2.2.4, to give the total delay
cost (DEL) over the lifetime.

2.6 Hazard Cost Model

Failure/unavailability of equipment may also cause hazardous events (possibly giving
incidents/accidents), giving the hazard cost:

cost of hazards to humans (e.g. personal injuries, fatalities)

cost of hazards to environment
cost of possible rebuilding (after accidental event)
cost of clean-up (after accidental events)

In addition to actual accidents (collision/derailing), we here also include hazardous

events like landslide. These costs, related to safety, are often not included in the LCC,
 19

partly because it involves putting a price on human lives, being somewhat

controversial. However, it is important in some way to make visible also these costs for
loss of safety. Of course it is possible to calculate LCC without including cost of risk.
But in that case some loss of safety measure should be calculated in addition (e.g. the
frequency of accidents), so that the overall decision could be based on two measures:
LCC and accident frequency.

Here it is suggested to include cost of risk in the LCC model in a rather rough way. The
number of hazardous/accidental events per year (or per 1000 years) is estimated, and
then multiplied with the estimated cost per event (without specifying in detail the
various contributions to this cost). Using this approach it will not be required to specify
the cost per (statistically occurring) fatality.

Introducing

NHE = Number of Hazardous/accidental Events per year caused by failures of the

"product" in question

HEC = Cost of one Hazardous/accidental Event.

Then Annual Hazard Cost is given as

AHC = NHE x HEC.

This annual hazard cost is discounted as shown in Section 2.2.4, to give the total hazard
cost (HAZ).

2.7 Simplified case for discounting of cost contributions

Using the present breakdown into cost categories, the overall LCC is found from (cf.
Figure 2.2)

LCC = INV + MAIN + DEL + HAZ

As pointed out in Section 2.2.4 costs must be discounted back to the base year, t0. In
the somewhat simplified LCC calculation suggested in the present report, we let the
year for start of operation, t1=t0+1. Further, we let the total investment costs (INV) be
given directly in terms of a cost invoiced in "year 0" (t0), i.e. the year prior to start of
operation, t1. The period of operation is exactly m years (from 1st of January in year 1
until 31st of December in year m). Finally, the annual costs of maintenance/operation
(AMC), delay (ADC) and hazards (AHC), respectively, are the same for all m years of
the operation for the product, and these costs are then multiplied with the discounting
factor f = [ 1 - (1+k)- m ] / k to give total costs. So in this case the total LCC equals (cf.
Section 2.2.4)

LCC = INV + [ AMC + ADC + AHC ] x [ 1 - (1+k)- m ] / k

 20

This is the simple discounting formula used in the calculations of the REMAIN LCC
model. Observe that AMC + ADC + AHZ equals the annual cost of ownership (life
support cost).

The comparison of two concepts is more problematic if the concepts have different
lifetimes (i.e. different values of m). In that case the annuities should be compared (total
cost split over the m years of operation). Thus, the LCC is multiplied with
k / [1 - (1+k)-m )], and in that case, the annual costs,

LCCANNUAL = INV x k / [1 - (1+k)-m ] + [ AMC + ADC + AHC ]

of the two concepts are compared. We remind that disposal and reinvestment costs are
not incorporated in the above formulas. By introducing the discounting factor

d(k, m) = k / [1 - (1+k)-m )]
(= 1/m, when k=0)

we get that annual investment costs equals

AIC = d(k, m) x INV

And annual LCC is written as

LCCANNUAL = d(k, m) x INV + ( AMC + ADC + AHC )

= AIC + AMC + ADC +AHC

2.8 Main features of the REMAIN model

In this Section we point out some of the features and limitations of the REMAIN model
for LCC analysis

The REMAIN model restricts to infrastructure equipment (i.e., possible

modifications required for use on rolling stock has not been investigated).

The REMAIN approach suggests a flexible method for data collection, applying a
questionnaire that allows data to be provided at various levels of detail (i.e. adapting
data collection to the resources available and to requested accuracy of the results).

The REMAIN model is rather simple, as e.g.

- the discount factor is constant through the lifetime
- the yearly costs (maintenance, operation etc) are fixed.
- it focuses on comparison between two options. The main objective is rather to
provide reasonable estimates of cost difference (for use as decision support), and
is not aiming at obtaining very accurate total cost estimates.
- disposal cost of equipment by end of its life cycle is not included
 21

It is realised that the inclusion of Hazard costs in the REMAIN model is somewhat
untraditional. However, for a fair comparison of two options it is judged essential also to
have safety in mind. Of course safety might be judged separately. However, it is
sensible, at least in a rough way, also to visualise the economical effects of possible
differences in safety, as these effects might easily be underestimated. Not only can a
somewhat lower safety lead to hazard costs as indicated in the REMAIN model, it might
also lead to reduced lifetime (e.g. by a turnout being destroyed in a derailment).
Obviously, the user is free not to include the hazard cost in the LCC analysis, if that is
preferred.

The REMAIN approach allows comparison of LCC for two different concepts. In order
to make such a comparison meaningful, also when the number of years in operation (m)
differs for the two options, the REMAIN approach focuses on annual LCC.

The use of LCC analysis is often seen as a burden, due to the large amount of (detailed)
information required. The use of the REMAIN method is then an option, when the
resources (and data) to carry out such a detailed analysis is not available. In particular,
such a more simple (and less costly) approach would be advantageous in order to
provide a first prediction of costs, e.g. to decide whether a more detailed analysis is
required or worthwhile (cf. the discussion in Chapter 3).

2.9 Use of LCC in the acquisition of new railway equipment

There is still not a widespread use of LCC in the acquisition of railway equipment.
However, the Swedish State Railway used the LCC approach in the acquisition of their
high speed train X2000, which is reported to be a success, for both parties (customer and
supplier), see Burstrm et al, 1994, and Akselsson and Burstrm, 1994. These papers
provide the information presented in the present Section.

2.9.1 General approach for acquisition

The following steps are recommended in the acquisition process:

1. Establishment of the LCC model

2. Determination of the operational profile
3. Request for proposals
4. Evaluation and amplification of the proposals
5. Negotiations with tenderers
6. Contract with LCC guarantee
7. Delivery
8. Verification

A few of these points are commented below. When establishing the LCC model it is
recommended to carry out a pre-study on an existing, similar system, both for validation
of the model, training of the LCC team, and also for establishing a reference for the
reliability and LCC evaluations of the tenders.

The following factors must be included in the request for proposals, see Burstrm et al
1994,
 22

Principles of the LCC evaluation. Inform that missing data or the failure of the
tenderer to guarantee properties of the product implied by the supplied data may be a
reason for rejection of the tender.
Supplier responsibility for availability performance. An availability performance
programme shall be carried out, involving continuous analyses of alternative
technical solutions during the engineering phase.
Expected guarantees from the suppliers should be stated.
Operational profile of the equipment.
The present maintenance organisation should be described. If the tenderer identifies
missing resources or equipment, necessary of maintaining the offered equipment, this
should be stated in the tender.
The LCC calculation model must be provided with the request for proposal, giving all
customer parameters.
Data necessary for the evaluation, thus to be included in a tender, must be carefully
specified.

The customer (railway company) performs the LCC calculations according to the stated
model, also using previous experience with similar equipment to estimate e.g.
maintenance costs.

2.9.2 Contractual requirements and verification

The contract will among other things contain rules for project realisation, for example
the change procedure, and guarantees. It should be guaranteed that a specific LCC value
must not be exceeded. Reliability and maintainability performance guarantees are also
desirable, e.g. maximum no. of failures requiring CM, and average or maximum repair
time. In the X2000 project the contract included guarantees concerning both reliability
performance and LCC:

1. The number of stopping failures should not exceed 12 per million km, the definition
of this being a stop on the line for more than 15 min without possible restart.
(Contractual status had indicated about 11 stopping failures pr million km.)
2. The number of faults causing an unplanned workshop visit directly after arrival at the
end station should not exceed 750. (Contractual status had indicated about 450.)
3. The LCC value as calculated according to the agreed LCC model should not be
exceeded by more than 10 per cent.

However, a guarantee is not much worth unless its fulfilment can and will be verified.
How this will be done should be outlined already in the request for proposals, and a
procedure agreed on in the contract.

In the X2000 project the contract stated that the contractor had an undertaking to
conduct verification of reliability, maintainability and LCC. The contract also included a
contractor commitment to carry out an availability performance programme. This means
that during the engineering phase continuous analyses concerning reliability and
maintainability performance should be carried out, and their impact on LCC assessed. A
specific maintenance analysis was also carried out, e.g. resulting in a prediction on the
balance between PM and CM.
 23

As in this case where strict reliability and LCC requirements are stated in the contract,
there is a prerequisite for a successful project that LCC and reliability considerations are
integrated into the normal design process.

LCC, reliability and maintainability verification implies that the equipment is very
carefully followed up during a reasonable period of normal operation. For the purpose of
reliability performance verification, all (failure) events are carefully reported and
logged, and customer and supplier together decide whether or not any event is a relevant
irregularity. The supplier is of course responsible only for failures resulting from the
vehicle itself. Maintainability performance (repair times) may be verified through repairs
of a number of randomly chosen failure modes. Verification of PM actions could be
rather expensive to perform, but the customer should at least reserve the right to demand
verification of any data provided by the supplier. Energy consumption also ought to be
verified, either theoretically or in practice.

In the X2000 project there was a verification period of six months, and in this period
every event involving a maintenance action was registered. Each report was classified
regarding relevance to the verification and regarding consequence. All reports were
considered relevant unless any of the following cases were fulfilled:

The failure was caused by incorrect handling

The failure was secondary failure, caused by another reported failure
The failure was caused by equipment not within the delivery
The failure was due to usage of the train beyond its specification.

"Failure" in this text is given a very wide meaning, since all events resulting in any
maintenance action, no matter how simple and unimportant they might be for the actual
service, are considered.

2.9.3 Benefits of using LCC

The referred LCC application (X2000) is reported to be a success, for both parties
(customer and supplier). It was demonstrated that the LCC technique is an efficient tool
to achieve low total cost and high reliability. By continuous and systematic analyses
throughout the whole process, from contract to verification, the result was a very reliable
product. There was no doubt that lower failure rates and shorter repair times were
achieved than would otherwise have been the case, and that has also been the means to
control the LCC.

The benefits for the customer are obvious. A much better defined product is achieved
already at the time of contract signing, and the supplier will be committed to do a good
job with emphasis on availability performance. All relevant costs of different technical
alternatives are calculated, enabling the most favourable solution regarding LCC to be
chosen. If a low LCC is predicted and subsequently verified the customer will benefit
from low support costs for the entire life of the system.

The LCC method has also advantages for the supplier. An insight into the customer's
intended use of the product and the value placed on different costs is obtained. The
supplier also gets a tool for evaluation of different technical solutions since availability
 24

performance can be valued in economic terms. Finally, if evidence of a thoroughly

evaluated product can be obtained, this can be used in marketing.
 25

3. LCC ASSESSMENT OF DEMONSTRATOR APPLICATION

In Chapter 3 the LCC model is applied to two specific cases for LCC quantification of
turnouts.

3.1 General approach

The assessments will highlight the cost differences between the reference system, i.e.
turnout without condition monitoring (CON) equipment and the same system with CON
equipment. Hence, there will be a focus on the potential cost reduction and the possible
additional costs originating from the introduction of CON equipment.

3.1.1 System breakdown

A detailed system breakdown is not required for the application investigated here
(turnouts). However, it is of course essential to distinguish between the turnout,
presently in use, and the additional equipment required for condition monitoring of the
turnout. The following notation will be used:

REFSYS = The system consisting of one turnout without the inclusion of condition
monitoring equipment

SYS = Additional equipment of one turnout, required for performing condition

monitoring

CONSYS = REFSYS + SYS = The system consisting of one turnout with the
inclusion of condition monitoring equipment

Thus, we first establish

LCCREFSYS = Cost for a conventional development, (REFSYS)

Next, we quantify

LCC = Increased cost by the introduction of Condition Monitoring Equipment

The cost of the CONSYS-development is then found as:

LCCCONSYS = LCCREFSYS + LCC

Thus, for each LCC element there is "cost", Cost, which equals the increase (+),
respectively reduction (-) in cost by the introduction of condition monitoring.

3.1.2 Cases to be considered

The cost estimates are aimed at being on an overall level, typically cost figures obtained
in the feasibility phase of a development. Ideally the cost estimates should be obtained
for the turnouts operating on the Demonstrator line, Dortmund-Hamm. However, data
 26

are obtained for two other lines, demonstrating that costs vary considerably, depending
on the actual use of line, etc.

Below the LCC of two cases are quantified. These will be referred to as

Case A, representing a high speed line, (both REFSYS and CONSYS)

Case B, representing an inter-city line, (REFSYS only)

In addition to receiving input from two railway companies concerning the turnout costs
of two specific lines, we have also received some information from DB AG and VAE
concerning investment costs of R2000. Cost reduction with respect to maintenance,
delay and hazard costs have been assessed by various judgments. A possible increase in
administration/operation man-hours, using condition monitoring must also be accounted
for.
The input data from the two railway companies are obtained, using the questionnaire,
presented in Chapter 6 (Appendix). The questionnaire is filled in with the actual input
provided for case A, documenting the actual data received. The data used in Section 3.2
are slightly modified and extended.

3.1.3 Basic assumptions.

The LCC-assessments, presented below, are based on the following assumptions:

Disposal and Reinvestment Costs are not included.

The PM will not cause delays (i.e. possible costs of delays caused by PM are not
included).

Maintenance and Operating Costs are broken down further than indicated in the
Figure 2.2.

There is no breakdown of hazard cost into subcategories, as indicated in Figure 2.2.

Cost for contractual verification (cf. Section 2.8) are not included.

All costs are real costs, measured in todays (1998) prices. Due to confidentiality
restrictions, only relative costs are provided here (without specifying monetary unit).

Yearly costs are given for Maintenance, Delay and Hazard Costs.

3.2 LCC of a high speed line (Case A)

This section presents the results of the LCC calculations for Case A. The raw data
provided are presented in Chapter 6 (Appendix)
 27

3.2.1 General data

Table 3.1 provides some fundamental input data required for the LCC calculations. The
values m = 30 years and k = 4.5% gives that the discount factor (see Section 2.7) equals
d(k, m) = 0.0614.

Table 3.1 General data (Case A)

Code Description REFSYS CONSYS
m Number of years in operation 30 30 (40)
(estimated lifetime of turnout)
NTO Number of turnouts forming basis of 280 0
estimates
MHR Man-hour rate, e.g. for maintenance 25 25
k Interest rate 4.5% 4.5%

For R2000 it is first (conservatively) assumed that expected lifetime of the turnout
remains unchanged (i.e. m=30). In addition we consider the possibility that the lifetime
of the turnout is extended from m = 30 to 40 years by the introduction of R2000.
Throughout, it is assumed that R2000 has the same lifetime as the turnout.

3.2.2 Investment Cost Data

The investment cost contributions for case A are presented in Table 3.2. Here
Equipment and Material Purchase Cost includes Engineering Cost.

Note: All costs given in this report are relative costs, assuming that total investment
cost for Case A equals 100 000 (monetary unit not specified).

Table 3.2 Investment Costs at year t0 (relative cost per turnout). Case A.
Cost element Investment cost
Code Description REFSYS COST CONSYS
EPC Equipment and Material Purchase 71 500 +11 500 83 000
Cost
ENC Engineering Cost
INC Installation Cost 23 100 + 7 700 30 800
ISPC Initial Spare Parts Cost 4 600 - 4 600
ITC Initial Training Cost 800 - 8000
INV Total Investment Cost 100 000 1) + 19 200 119 200
1)
All costs are relative to this Investment Cost (arbitrarily given as 100 000)

3.2.3 Maintenance and Operating Cost Data

The annual costs for Maintenance/operation, Delay and Hazard are presented in Table
3.2. The Maintenance/operation costs are also broken down in the various contributions
(cf. Figure 2.2).
 28

Table 3.3 Annual Maintenance and Operating Costs Data per turnout. Case A.
Cost element Annual cost
Code Description REFSYS COST CONSYS
CMC Corrective Maintenance Cost 150 0 150
PMC Calendar based PM Cost 2 150 - 1 250 900
CONC Condition based PM Cost 0 800 800
ADC Administration Cost 4 250 - 1 900 2 300
ECC Energy Consumption Cost 150 +100 250
AMC Annual Maintenance and 6 700 - 2 300 4 400
Operating Cost

3.2.4 Annual Delay and Hazard Costs.

Table 3.4 presents Delay and Hazard Cost input data. Several of these data are SINTEF
estimates, and it is conservatively assumed that R2000 does not reduce Delay and
Hazard costs. This is reasonable since delay is not a severe problem in the high speed
line; i.e. there are very few delays per year. The actual input information provided for
Case A does, however, indicate that these costs are small indeed, compared to the
investment and maintenance costs.

Table 3.4 Annual Delay and Hazard Costs Data per turnout. Case A
Cost element Annual cost
Code Description REFSYS COST CONSYS
NSD Number of Short Term Delays per year 0.1 0 0.1
SDC Short Term Delay Cost 2 000 0 2 000
NLD Number of Long Term Delays per year 0 0 0
LDC Long Term Delay Cost - - -
ADC Annual Delay Cost 200 0 200
NHE Number of Hazardous/Accidental 0.001 0 0.001
Events per year
HEC Hazardous/Accidental Event Cost 100 000 0 100 000
AHC Annual Hazard Cost 100 0 100

3.2.5 LCC results for case A

Table 3.5 summarises the results of the LCC calculations. Annual costs are given. In
particular Annual Investment Cost, AIC, is obtained using the discount factor

d(4.5%, 30 years) 0.061

 29

Table 3.5 Annual Life Cycle Cost. Case A

Cost element Annual cost
Code Description REFSYS COST CONSYS
AIC Annual Investment Cost 6 100 + 1 200 7 300
AMC Annual Maintenance and 6 700 - 2 300 4 400
Operating Cost
ADC Annual Delay Cost 200 0 200
AHC Annual Hazard Cost 100 0 100
LCCANNUAL Annual Life Cycle Cost 13 100 - 1 100 12 000

Further, the LCC is also calculated for CONSYS, assuming that the lifetime is extended
to 40 years. This is based on the assumption that the introduction of R2000 may actually
prolong the lifetime of the turnout. (In this calculation it is implicitly assumed that also
R2000 has a lifetime of 40 years, which may be a questionable assumption.) This gives
the following annual life cycle costs.

REFSYS (m= 30 years):

LCCANNUAL = 6 100 + 6 700 + 200 + 100 = 13 100

CONSYS (m = 30 years):
LCCANNUAL = 7 300 + 4 400 + 200 + 100 = 12 000

CONSYS (m = 40 years):
LCCANNUAL = 6 500 + 4 400 + 200 + 100 = 11 200

This is also summarised in Figure 3.1. From these figures the reduction in maintenance
costs makes it cost effective to invest in condition monitoring equipment (also when
lifetime is unchanged). We observe that according the data of Case A, the delay and
hazard costs (ADC and AHC) do not significantly affect the comparison, because delay
(and hazard) costs here are extremely low. (For a conventional line, however, the delay
costs might be significant.)

ANNUAL LCC

14000
12000
10000 Hazard
8000 Delay
Cost

Maint
6000
Inv
4000
2000
0
REFSYS (m=30) CONSYS (m=30) CONSYS (m=40)

Figure 3.1 Annual LCC for reference system (turnout without R2000) and for turnout
with R2000.
 30

3.3 LCC of an inter-city line (Case B)

Here we present input data and calculation of LCC for Case B (an inter-city line).
Investment costs and maintenance costs, only, are provided, and we restrict to calculate
the annual LCC for these. (Figures are somewhat approximate, and value of k is chosen
by SINTEF). In this case we do not consider the inclusion of condition monitoring. The
case, however, serves as an illustration of the big variability in the costs. The possible
cost effectiveness of the condition monitoring equipment must be demonstrated in each
case.

3.3.1 Input data

Some "general" input data provide for Case B is presented in Table 3.6. The input
provided for primary investment data of the reference system are presented in Table 3.7.
Here the given cost of EPC (20 000) actually is the sum, EPC+ENC+ITC.

Table 3.6 General Data. Case B

Parameter Value
Code Description
m No. of years in operation 50
NTO No. of turnouts included in cost assessments 115
MHR Man-hour rate 22
k Discount/interest rate 5%

Table 3.7 Investment Cost Data. Case B.

Parameter Cost, REFSYS
Code Description (per turnout)
EPC Equipment and Material Purchase Cost 20 000
ENC Engineering Cost
INC Installation Cost 4 000
ISPC Initial Spare Parts Cost
ITC Initial Training Cost
INV Total Investment Cost 24 000

The input data for the maintenance and operating costs are presented in Table 3.8. (This
table is more detailed than the corresponding Table 3.3 for case A. The calculated
annual costs are given in bold.
 31

Table 3.8 Annual Maintenance and Operating Cost Data. Case B

Parameter Data, REFSYS
Code Description (per turnout)
NCM No. of failures per year requiring CM 0.5
MHCM No. of man-hours required for each failure (CM) 2.1
SPCM Spare Parts cost per repair (CM) 5
LSCM Logistic Support Cost for CM per year -
CMC CM Cost (per year) 28
NPM No. of calendar based PM actions per year 12
MHPM No. of man-hours per calendar based PM 1.6
SPPM Spare Parts Cost for calendar based PM per year 3
LSPM Logistic Support Cost for cal. based PM per year -
PMC Calendar based PM Cost (per year) 1) 505
CONC CONdition monitoring Cost (per year) -
ADC Administrative Cost (per year) 53
ECC Energy Consumption Cost (per year) 4
AMC Annual Maintenance and Operating Cost 590
1)
This also includes cost of a general PM every 5 year (is about 10% of total PMC)

3.3.2 LCC for Case B

The discounting factor for case B equals d(5%, 50 years) = 0.0548. Thus, the annual
investment costs equals AIC = 24 000 x 0.0548 = 1 300. This gives the annual LCC as
presented in Table 3.9. Here maintenance cost is a relatively small percentage of total
cost, and introduction of a condition monitoring system might not be cost effective.

Table 3.9 Annual Life Cycle Cost. Case B.

Code Description Cost
REFSYS
AIC Annual Investment Cost 1 310
AMC Annual Maintenance and Operating Cost 590
ADC Annual Delay Cost -
AHC Annual Hazard Cost -
LCCANNUAL Annual Life Cycle Cost 1 900
 32

4. COST EFFECTIVENESS OF THE CONDITION MONITORING CONCEPT

In order to conclude on the cost effectiveness of introducing condition monitoring

equipment (here R2000), we might perform some sensitivity analyses. The question of
whether some but not all sensors are cost effective requires more detailed analyses, cf.
Vatn (1998), where also an overall optimisation of the maintenance strategy is
considered.

In the present chapter we restrict to discuss the conclusion of case A (Section 3.2) on
the cost effectiveness of introducing R2000. As input data are always uncertain, the
main question is: How sensitive is this conclusion to variation in the input data?

Here we restrict to carry out this discussion by considering the following approximation.

Approximation: Assume that

1. m is not changed by introducing R2000
2. ADC = AHC 0

(here and in the following we use the notation that -ADC = reduction in annual delay
costs by introducing R2000, and AHC is defined similarly).

Both assumptions of this approximation are considered conservative in the sense that
R2000 might possibly extend the lifetime (increase m) of the turnout, and also reduce
the delay and hazard costs. So if R2000 is found cost effective even under these
assumptions, we can actually conclude that this is the case. Further, as the estimates of
ADC and AHC were so small for case A, assumption 2 will hardly affect the conclusion
(unless the estimates are very wrong). We conclude that (for case A)

The cost effectiveness of R2000 essentially is

determined by
k m INV AMC

Here INV= increased investment costs by introducing R2000, and -AMC= reduction
in annual maintenance cost. Further, assumptions 1 and 2 infer that the difference in the
annual LCC of REFSYS and CONSYS equals

LCCANNUAL = d(k, m) x INV + AMC

where as before
d(k, m) = k / [1 - (1+k)-m]
d(k, m) = 1/m, when k = 0

Thus, we conclude that R2000 results in cost reduction (LCCANNUAL< 0) when

 33

-AMC > d(k, m) x INV

(that is, when the reduction in AMC is larger than the increase in discounted investment
cost)

Example:
For case A, we have the following values (see Section 3.2)
AMC = -2 300
d(k, m) = 0.0614
INV = 19 200

giving
-AMC = 2 300 > 0.0614 x 19 200 = 1 180

once more demonstrating the cost effectiveness of introducing R2000.

In general, we claim that:

1. Good estimates are usually available for k, m and INV :

Gives (upper limit) for the Right Side of the inequality
above
2. Detailed discussion of -AMC is required to conclude on the
cost effectiveness on introducing CON

Regarding item 1. it is observed that:

Lower limit of m and upper limit of k provides upper limit of d(k, m)

This is illustrated in Table 4.1. For instance it is seen that if k 6% and m 20 years,
then it follows that d(k, m) 0.087.

Table 4.1 Values of d(k, m)

k
M 0% 2% 4.5% 6% 8% 10%
20 years 0.050 0.061 0.077 0.087 0.102 0.117
30 years 0.033 0.045 0.061 0.073 0.089 0.106
40 years 0.025 0.037 0.054 0.067 0.084 0.102
50 years 0.020 0.032 0.051 0.063 0.082 0.101
 34

Example on how to arrive at a firm conclusion with respect to cost effectiveness:

1. Provide estimates (limits) of k, m and upper limit of INV, e.g.:
k 6% and m 20 years: It follows that d(k, m) 0.087
INV 20 000
giving an upper limit of the right side of the inequality above.

2. It follows that R2000 is cost effective if

-AMC > 0.087 x 20 000 = 1 740

Generally it should not be too hard to obtain good estimates for the right side of the
above inequality. Thus, often it is the case that:

Essentially a discussion on reduction in annual maintenance

cost, -AMC, is required to conclude with respect to the cost
effectiveness of R2000

Here we have used the possible acquisition of R2000 for a turnout as an example.
However, the outlined approach for cost comparison is of course quite general.
 35

5. REFERENCES

IEC, 1987
Draft IEC/TC 56, Draft - Life Cycle Costing - Concepts, procedures and
applications, IEC, 1987.

IEC, 1996
International Standard, IEC 300-3-3, Dependability management - Part 3: Application
Guide - Section 3: Life Cycle Costing, IEC. First edition 1996.

NORSOK, 1994
NORSOK P-CR-002, Common Requirements - Life Cycle Cost, Rev. 1, December
1994.

NORSOK, 1995
NORSOK O-CR-002, Life Cycle Cost for Production Facility, Draft 1, September
1995.

NPD, 1990
Norwegian Petroleum Directorate, Regulations concerning implementation and use of
risk analyses in the petroleum activities, 1990.

SINTEF, 1989
S. Lydersen and R. Aar, Life Cycle Cost Prediction Handbook; Computer-Based
Process Safety Systems, SINTEF Report STF75 A89024, 1989.

Akselsson and Burstrm, 1994

H. Akselsson and B. Burstrm, 1994, Life cycle cost procurement of Swedish State
Railways' high-speed train X2000. Proc. Instn. Mete. Engrs. Vol. 208, pp 51 - 59.

Burstrm et al, 1994

B. Burstrm, G. Ericsson and U. Kjellson, 1994, Verification of Life-Cycle Cost and
Reliability for the Swedish High Speed Train X2000. Proceedings Annual Reliability
and Maintainability Symposium, pp 166 - 171.

Vatn, 1998
J. Vatn, 1998. Strategic Maintenance Planning in Railway Systems (RESMAP).
Technical Report STF38 A98425, SINTEF Industrial management, N7034 Trondheim,
Norway. ISBN 82-14-00451-9.
 36

6. APPENDIX. Questionnaire for LCC input data

The following pages present the questionnaire particularly developed in REMAIN for
obtaining input data to the LCC analysis.
 37

1. General Data
Entry Parameter Value Comments
No. Symbol Description
1.1 m Number of years in operation.
The average life length of a turnout (from installation to disposal)
1.2 NSW Number of turnouts.
The number of turnouts being the basis for the assessments
1.3 MHR Man-hour rate.
The total cost associated with an employee (wages, taxes,
insurance, canteen, ....)
1.4 k "Interest rate".
The interest rate used for economic planning in the company.
The real (nominal) interest rate should be compensated for the
effect of inflation:
Provide the interest rate minus the rate of inflation!
 38

2. (Primary) Investment Data

Entry Parameter Value Comments
No. Symbol Description
2.1 EPC Equipment and Material Purchase Cost.
Cost for one turnout
2.2 ENC Engineering Cost.
Total engineering cost for one turnout
2.3 INC Installation Cost.
Total installation cost for one turnout
2.4 ISPC Initial Spare Parts Cost.
Total cost for initial spare parts of one turnout
2.5 ITC Initial Training Cost.
Total cost required for initial training of personnel for operation of
one turnout
2.6 INV Investment Cost.
Total cost, prior to start of operation for one turnout
 39

3. Maintenance and Operating Cost Data (yearly costs)

Entry Parameter Value Comments
No. Symbo Description
l
3.1 CMC Corrective Maintenance Cost.
Total annual cost for corrective maintenance of one turnout.
3.2 PMC Calendar based Preventive Maintenance (PM) Cost.
Total annual cost for calendar based PM of one turnout.
3.3 CONC Condition based PM Cost.
Total annual cost for condition based PM of one turnout.
3.4 ADC Administrative Cost.
All annual costs of one turnout in addition to those of 3.1-3.3,
e.g. including preparedness, training.
3.5 ECC Energy Consumption Cost.
Total annual energy cost for one turnout.
3.6 AMC Annual Maintenance and Operating Cost.
Total operation and maintenance cost per year for one turnout.
1)
Second term only is included in the LCC analysis of turnouts
 40

3.1 Corrective Maintenance (CM) Data (detailing the data given in 3.1)
Entry Parameter Value Comments
No. Symbol Description
3.1.1 NCM Number of failures per year requiring Corrective Maintenance
(CM).
Total number of failures per year for one turnout.
3.1.2 MHCM Number of man-hours required for each failure repair.
Total number of man-hours, including travel, fault finding,
testing after repair, etc., for one failure
(=Mean Time To Repair multiplied with the number of men
required to do the job)
3.1.3 SPCM Spare Parts Cost per repair.
Total average cost of spare parts during the repair of one failure
3.1.4 LSCM Logistic Support Cost for CM.
Total annual cost for logistic support for corrective maintenance
of one turnout (i.e. CM cost in addition to those following from
3.1.2 - 3.1.3)
 41

3.2 Calendar based Preventive Maintenance (PM) Data (detailing the data given in 3.2)
Entry Parameter Value Comments
No. Symbol Description
Number of calendar based PM actions per year.
Total number of calendar based PM actions per year for one
turnout.
3.2.2 MHPM Number of man-hours required for each calendar based PM
action.
Total number of man-hours for PM of one turnout, including e.g.
travel.
3.2.3 SPPM Spare Parts Cost per calendar based PM action.
Total average cost of spare parts during the PM of one turnout.
3.2.4 LSPM Logistic Support Cost.
Total annual cost for logistic support for calendar based PM of
one turnout (i.e. calendar based PM cost in addition to those
following from 3.2.2 - 3.2.3)
 42

3.3 Condition based Preventive Maintenance Data (detailing the data given in 3.3)
Entry Parameter Value Comments
No. Symbol Description
3.3.1 MHCON Number of man-hours required for Condition based PM per year
Total number of man-hours required for condition based PM per year,
including e.g. travel, for one turnout.
3.3.2 SPCON Spare Parts Cost required for Condition based PM per year.
Total average cost of spare parts required for Condition based PM per
year, for one turnout.
3.3.3 LSCON Logistic Support Cost.
Total annual cost for logistic support required for Condition based PM
of one turnout (i.e. Condition based PM cost in addition to those
following from 3.3.2 - 3.3.3)
 43

4. Delay Cost Data (yearly costs)

Entry Parameter Value Comments
No. Symbol Description
4.1 NSD Number of Short Term Delays per Year.
Total no. of events per year resulting in "short" train delays, caused by failure of
one turnout. Exclude very short delays, which are not expected to incur any cost,
(include delays of duration up to say 1 hour, that e.g. will not require alternative
transportation).
4.2 SDC Short Term Delay Cost.
Total cost per delay, caused by an average "short term delay".
4.3 NLD Number of Long Term Delays per Year.
Total no. of events per year resulting in "long" train delays, caused by failure of
one turnout,
(include delays that require specific measures to be taken, e.g. providing
alternative transportation).
4.4 LDC Long Term Delay Cost.
Total cost per delay, caused by an average "long term delay".
4.5 ADC Annual Delay Cost.
Total annual cost related to unavailability/delay caused by one turnout.
 44

5. Hazard Cost Data (yearly costs)

Entry Parameter Value Comments
No. Symbol Description
5.1 NHE Number of Hazardous/Accidental Events per Year.
Total no. of hazardous events per year, caused by failure of one turnout.
A hazardous event is an accident causing a threat to human safety, environment
or material damage.
5.2 HEC Hazardous/Accidental Event Cost.
The total cost caused by one "average" hazardous-/accidental event. Includes e.g.
personal injuries, fatalities, material/environmental damage and
cleaning/rebuilding costs after accidents.
("How much is the company willing to pay to avoid such an event"?)
5.3 AHC Annual Hazard Cost.
Total annual cost related to hazardous/accidental events, caused by one turnout.