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Life cycle costing

Team JHNG

Content
Introduction

Objective
Importance PLC stages Life-Cycle Costing and Value Engineering When Is Life-Cycle Costing Appropriate? Input to LCC Examples Conclusion

Introduction
Life cycle cost is the total cost of ownership of

machinery and equipment, including its cost of acquisition, operation, maintenance, conversion. LCC are summations of cost estimates from inception to disposal for both equipment and projects as determined by an analytical study and estimate of total costs experienced in annual time increments during the project life.

Life-cycle analysis (LCA) is a method in which the energy

and raw material consumption, different types of emissions and other important factors related to a specific product are being measured, analyzed and summoned over the products entire life cycle from an environmental point of view.
LCAs started in the early 1970s, initially to investigate the

energy requirements for different processes.


Emissions and raw materials were added later. LCAs are considered to be the most comprehensive

approach to assessing environmental impact.

Initially, numerous variants of LCA methods were

developed/investigated, but today there is consensus that there is only one basic method with a large number of variants
The

Society of Environmental Toxicology and Chemistry (SETAC), an international platform for toxicologists, published a Code of Practice, a widely accepted series of guidelines and definitions.

Nowadays, IS0 14040-14043 is considered to be the

LCA standard.

Generally, a LCA consists of four main activities: 1. Goal definition (ISO 14040): The basis and scope of the evaluation are defined.

2. Inventory Analysis (ISO 14041): Create a process tree in which all processes from raw material extraction through waste water treatment are mapped out and connected and mass and energy balances are closed (all emissions and consumptions are accounted for).
3. Impact Assessment (ISO 14042): Emissions and consumptions are translated into environmental effects. The are environmental effects are grouped and weighted. 4. Improvement Assessment/Interpretation (ISO 14043): Areas for improvement are identified.

Objective
The objective of LCC analysis is to choose the

most cost effective approach from a series of alternatives to achieve the lowest long-term cost of ownership.

Why it is important
There are 4 major benefits of LCC analysis: evaluation of competing options in purchasing; improved awareness of total costs; more accurate forecasting of cost profiles; and performance trade-off against cost.

Product life cycle

Introduction stage
Product awareness and acceptance

High promotional cost and development cost


Poor distribution strategies

Growth stage
Introductory promotion

Less costly compared to profit

Maturity Stage
Stable competition

Low cost due to higher volume

Decline stage
Low cost per consumer

Decline in sales

Life-Cycle Costing and Value Engineering


Life-cycle costing is also heavily associated

with value engineering. Value engineering is a process used by businesses to reach target cost goals. This process touches all aspects of a product. It is designed to eliminate activities that do not add value, and increase efficiency in activities that are necessary and do add value.

When Is Life-Cycle Costing Appropriate?


Life-cycle costing is most appropriate when a

product is in the design, or pre-design stages. This will allow management to gain the most benefit from the process, as opposed to attempting to use life-cycle costing after a product is already in the marketplace.

Input to LCC

Life Cycle Cost Tree

Example
example1.doc

Details.asp.htm

Conclusion
Life-cycle costing is a method of costing that

looks at a products entire value chain from a cost perspective. Other types of costing generally look only at the production process, whereas life-cycle costing tracks and evaluates costing from the research and development phase of a products life, through to the decline and eventual conclusion of a products life.

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