L5.2. LCC

Question 1

Life Cycle Costing (LCC)

Answer 1

LCC is a compilation and assessment of all costs related to a product, over its entire life cycle, from production to use, maintenance and disposal. It summarizes all costs associated with the life cycle of a product that are directly covered by one or more of the actors in the product life cycle.

Question 2

Costs to be included

Answer 2

• Must be related to real money flows
• Acquisition costs
• Transport costs (if not already included in the cost of purchase)
• Installation costs
• Operating and maintenance costs
• Disposal costs
• Residual value

Question 3

Total Cost of Ownership

Answer 3

It determines the total costs (both direct and indirect) throughout the life cycle of a product or service, up till the preparation of the location of facilities for a next economic use.

Question 4

Cost Element

Answer 4

For an equipment, there are TWO cost elements. The identification of cost elements and their sub-division are based on the purpose and scope of the LCC study.
1. Initial Cost (equipment of unit process): Design & Development, Investment, Installation
2. Operation & Maintenance Cost: Labour, Energy, Spare & Maintenance, Raw material

Question 5

Steps of Life Cycle Costing

Answer 5

1. Definition of goal and scope (system boundaries, functional unit, stakeholders, and so on). Who is the reference of the LCC?
2. Life Cycle Costing Inventory – Internal costs
3. Life Cycle Costing Inventory – External costs
4. Calculate LCC by adding all cost element for FU
5. Interpretation of the results.

Question 6

Internal and External Costs

Answer 6

Internal costs are all costs and revenues within an economic system. External costs that are envisioned to include the monetized effects of environmental and social impacts not directly billed to the firm, consumer, or government, etc. that is producing, using, or handling the product.

Question 7

Period of Analysis

Answer 7

The period of analysis should be based on the client’s requirements, which may be over the life cycle of the asset. Where the life cycle is longer than 100 years, the period used in calculations can be 100 years.
1. Moment Zero: Usually correspond with the moment in which the decision is to be made. All costs are referred to this moment through a discount operation;
2. Period of Design/Construction: in this period the initial investment is carried out and are incurred all the costs of design, construction and completion of all activities for building the asset;
3. Period of Management/Maintenance: is the time that elapses between when the building is complete and when it starts having management and maintenance costs.
3. N-year: is the final year of the Period of Analysis. Generally, it coincides with the
4. useful life of the building.

Question 8

Life Cycle Costing Stages?

Answer 8

1. Project
2. Design
3. Construction
4. Operation and Maintenance
5. End of Life