Life Cycle Cost (LCC) analysis is a means of quantifying the choice of materials for a product or construction, with the aim of selection of the most economic alternative. Traditionally the selection of a material for a given application has been on the basis of the cheapest purchase price. It is now recognised that the cheapest purchase price may not be the most economic choice if account is taken of the very real additional costs due to installation, regular maintenance and for periodic replacement should the material's life be less than that required for the product or construction. In the case of equipment installed in factories or processing plants a further cost which must be included for each possible alternative material is that caused by lost time - the time for which production is lost because of unscheduled down-time of the equipment. In many industries this lost time cost far outweighs all other costs, and must certainly be included in estimates of life cycle cost.

Life Cycle Cost Components

In general terms the total LCC can be broken down into components: LCC= Acquisition Cost + Fabrication and Installation Cost + Maintenance Costs (periodic) + Replacement Costs (periodic) + Cost of Lost Production (periodic) - Residual (Scrap) Value Each of these terms must be known if a realistic result is to be calculated. Evaluation of Life Cycle Cost The calculation of LCC relies upon the concept of the "time value of money" - the notion that a dollar spent next year costs less than a dollar spent today, because the money could in the interim be invested and hence be generating income of its own. Future expenditures can therefore be discounted by a factor which depends upon several inputs, including the cost of funds to the organisation, the prevailing inflation rate and the time period for which the expenditure is delayed. Calculation by manual methods is quite complex, so in the past this valuable tool has been left to the accounting specialists. With the wide availability of PC spreadsheets the calculation of LCC has become much easier, but a further step towards ease of use has been made with the implementation of a personal computer program specifically for this task. LCC Calculation by Computer Program A PC program has been produced by the International Chromium Development Association and is available in Australia from the Australian Stainless Steel Development Association (ASSDA). Copies can also be obtained free of charge from stainless steel suppliers. The program is designed to run on any IBM-compatible PC. The LCC computer program has been written to ensure ease of use; all inputs are keyed into appropriate simple screens, and the resulting changes are reflected immediately in the calculated LCC, giving comparative costs for up to three alternative materials. An Example Life Cycle Cost Analysis An example of the use of LCC analysis using the ICDA LCC software is for a simple rectangular mixing tank. The requirement is for a 20 year tank life, to coincide with the requirement for other components of the water treatment plant. The design brief requested evaluation of three alternative materials: 1. Mild steel with applied fibreglass lining 2. Stainless steel - austenitic Type 304 3. Stainless steel - duplex Type 2205 As the 2205 was not readily available in the angle and channel products required for reinforcement of the tank, these were substituted by Type 304 in the 2205 design; these components were not to be in regular contact with the corrosive environment, so no corrosion problem was anticipated. Experience suggested that both the 304 and 2205 would survive without replacement for the full twenty years, whereas the mild steel was expected to last for only eight years before replacement. In addition both the stainless steels were expected to require only minimal inspection and cleaning as regular maintenance, in comparison with regular fairly extensive patching of the mild steel and its lining. The "Summation of Present Value Costs" in Table 1 shows the resulting LCC analysis - the Type 304 stainless steel is lowest cost, closely followed by the 2205 and with mild steel substantially more expensive due to its higher maintenance and replacement costs. The Material Cost (acquisition cost) of the mild steel construction is of course by far the cheapest. The negative Replacement Costs for the two stainless steel alternatives reflect the expected significant residual scrap value of the metal at the end of 20 years, discounted from the initial material costs because it is a deferred income. The "Value of Lost Production" in the summary table is shown as zero - this implies all maintenance and replacement is carried out in scheduled shut-downs for other plant maintenance. Unexpected shut-downs causing lost production could substantially add to the Total Operating Cost of the option requiring this unscheduled maintenance. Sensitivity Analysis A very powerful feature of the ICDA software is its ability to give a "sensitivity analysis" of the output. This is an estimate of the effect on the output if each of the inputs is independently varied by some given amount - usually ±20%. From examination of these values it is clear which inputs must be very precisely known if a realistic output is to be obtained, and which inputs have very little influence over the calculated cost. Further efforts might then need to be made to gain further precision in some of the more critical inputs. A sensitivity analysis of the water treatment plant mixing tank showed that the most critical data is the time before replacement becomes necessary. The assumption was that the 304 and 2205 would both survive for the full twenty years; from the sensitivity analysis it is apparent that if the 304 fails before this time (possibly due to its lower pitting corrosion resistance compared to the 2205), the 2205 duplex stainless steel becomes by far the cheapest option. Clearly a good knowledge of the actual operating conditions to be encountered is crucial to the correct selection. Example Summary The Mixing Tank example may be included with other examples on copies of the LCC program floppy disc. This example can be retrieved, modified if desired, and the results printed. Standard printed output includes the summary table (as below), a more detailed breakdown of inputs and outputs, and a table showing the sensitivity analysis.