Lifecycle cost analysis (LCCA) allows a business to look at all aspects of cost within a products life cycle, considering the different decisions they could make at various stages. The process offers insight into how those decisions could affect total costs throughout the products life. Because of this, the process should be carried out in the early stages of a products life when there is still the most scope to implement changes that ensure maximum savings can be achieved.
There are 5 core areas of cost that need to be considered in a LCCA, as well as any other areas that could be appropriate for the specific business or product. Before we run through the specific areas, we'll look at some of the benefits lifecycle costing can bring.
Benefits of a lifecycle cost analysis
Clearly the main benefit of a LCCA process is to better understand and optimise the cost of a product. However, by carrying out this analysis, there are other benefits that can arise. These include:
- The creation of a detailed spend profile for the lifecycle of a product, that can be used as insight for various decisions
- A proactive approach to driving cost savings, that can be applied early in a process as opposed to reactively when costs may already be higher than necessary
- Ability to identify risks that may occur late in a products life cycle much earlier
- Increase collaboration across the business when making decisions that relate to cost
- Gives better oversight and allows businesses to apply a wider lens when supporting strategic decision making
- Can allow you to optimise for other elements alongside cost, for example product durability, maintenance and even product life span
Key areas in lifecycle cost analysis
1 Capital costs
This should consist of all costs associated to the planning, design, and construction/ installation of assets. For example, this may include design costs, prototype costs, administration/ overhead costs, survey costs, civil/structural costs, mechanical costs, and electrical costs.
2 Operating costs
This area includes all cost components related to the daily operation of assets, for example energy costs, chemical costs and telecommunication costs.
3 Maintenance costs
Maintenance costs include all cost components that relate to the ensuring the asset works as intended for the project. This could include routine, preventative, predictive, and emergency maintenance labour costs, healthcare costs, and analytic equipment costs.
4 Renewal costs
This should include a review of all cost components related to the renewal activity anticipated on the asset, for example anticipated major repairs and/ or rehabilitation that falls outside of what is covered by the maintenance fund.
5 Disposal costs
Finally, disposal costs should account for the total cost of disposal of an asset at the end of it's design life.
Any other costs that fall outside of these five categories must also be considered, and what these are will depend largely on the business and asset in question. For example, in certain industries specific certificates may be required which could come with a cost, e.g chemical treatments.
How can we help?
Our cost and value engineering experts can support business with life cycle cost analysis, combining their knowledge with Vendigitals' digital platform to give a comprehensive overview and detailed lifecycle costing data.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.