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Life Cycle Cost Categories

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Asanka Chathuranga
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39 views

Life Cycle Cost Categories

Uploaded by

Asanka Chathuranga
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Life Cycle Cost Categories

Acquisition costs Operations and support costs Phase-out


Research and development Operations Salvage value
Management Facilities Disposal costs
Engineering Operators
Design and prototyping Consumables (energy and fuel)
Engineering design Unavailable time or downtime
Fabrication Support
Testing and evaluation Repair resources
Tools, test, and sup-equipment
Production Supply resources:
Manufacturing Repairables
Plant facilities and Expendables
overhead
Marketing and distribution Failure costs
Training
Technical data

Chapter 8 1
Impact of a reliability program on life cycle cost
Total Life Cycle Costs

Total Life Cycle Costs


Operatinal
Costs Operatinal
Costs

Acquistion
Acquistion Costs
Costs

No Formal With Formal Reliability


Reliability Program Program
Dhudsia, V. (1992), “Guidelines for equipment
Reliability”, SEMATCH, Inc.

2
Optimizing Life Cycle Costs

Life Cycle
Cost
Life Optimized Cost
Cycle Point
Operational
Cost Costs Acquisition
Costs

Reliability

Dhudsia, V. (1992), “Guidelines for equipment Reliability”, SEMATCH, Inc.

3
Life Cycle Cost

LCC = Acquisition Costs + Operations Costs + Failure Cost


+ Support Costs - Net Residual Value

where Net Residual Value = Residual Value - Disposal Cost


the Net Residual Value is the value of an asset at the end of its depreciation .

Chapter 8 4
Discounting Monetary Values
f = constant annual inflation rate
e = annual return on investment rate
then i  e - f for small values of f and e.

Let PF(i,d) = 1 / (1+i)d


F is a future amount at the end of year d,

PA(i,d) = [ (1+i)d - 1 ] / [ i (1+i)d ]


A is an equal annual amount observed over d years.
Discounted, or present value, is the value of the bond today. The
future value is the value of the bond at some time in the future. The
difference
Chapter 8
in value between the future and the present is created by 5
Life Cycle Cost Revisited
LCC = {Cu N} + {Fo + PA(i, td ) Co N}
+ {PA(i, td ) Cf (t0 /MTTF) N} + {Fs + PA(i, td ) Cs N}
- {PF(i,td ) S N}
where Cu = unit acquisition cost
N = number of identical units to be procured
Fo = fixed cost of operating
Co = annual operating costs per unit
Fs = fixed support cost
Cs = annual support cost per unit
Cf = cost per failure
t0 = operating hours per year per unit
td = design life (in years). 6
Chapter 8
S = unit salvage value (a neg. value is a disposal cost)
Example 8.1
Two designs are being considered for a new product operating
throughout the year and having the following characteristics:

Design 1: Cu = 1200, 1 = .02 /yr


Design 2: Cu = 1300, 2 = .01 /yr

The design life of the product is 10 years. A failure results in a


replacement at the unit acquisition cost (i.e. Cu = Cf ).
Assuming an interest rate of 5 percent, PA(.05,10) = 7.7217

Design 1: 1200 [ 1 + P/A(.05,10) .02 ] = 1385.32


Design 2: 1300 [ 1 + P/A(.05,10) .01 ] = 1400.38
Chapter 8 7

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