04/13/2023 1College Of Electrical And Mechanical Engineering, NUST, Pakistan

Life Cycle Cost

By: Huzaifa Sajid

A Case Study Of Light Bulbs

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Life Cycle Costing (LCC)Life cycle costing, LCC, is the process

of economic analysis to asses the total cost of ownership of a product,

including its cost of installation, operation, maintenance, conversion,

and/or decommission.

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Why Use LCC?

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Why Use LCC?

Project Engineering

Maintenance

Engineering

Accounting Reliability Engineering

Shareholders ProductionIndustry

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Why Use LCC?• Project Engineering wants to minimize capital costs as

the only criteria

• Maintenance Engineering wants to minimize repair

hours

• Production wants to maximize uptime hours

• Reliability Engineering wants to avoid failures

• Accounting wants to maximize project net present value

• Shareholders want to increase stockholder wealth

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Why Use LCC?

LCC can be used as a management decision tool for synchronizing the divisional conflicts by focusing on facts, money, and time.

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Life Cycle Cost Calculation Approaches

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Deterministic Approach• An Exact Cost is Determined

Probabilistic Approach• A range of Values is determined with a specific

probability distribution.

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Deterministic Approach• Fixed discrete values are assigned to

various parameters and any type of uncertainties are ignored

• LCC calculated is fixed value

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Probabilistic Approach• Cost parameters are assigned with

some appropriate probability distribution.

• Random numbers are generated • These random numbers are used to

calculate the LCC

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Calculating the totalLife Cycle Cost

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Costs Involved• Initial Cost (Cic)• Delivery and Installation Costs (Cinst)• Energy Cost (Ce)• Operational cost (Co)• Maintenance Cost (Cm)• Downtime Costs (Cs)• Decommissioning/disposal costs (Cd)

FormulaLCC = Cic + Cinst + Ce + Co + Cm + Cs + Cd

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Case Study of a light bulb

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Case Study of a light bulb

College Of Electrical And Mechanical Engineering, NUST, Pakistan

•Suppose there is a company which wants to buy light bulb for one of its offices. And they want the bulb to work for 10,000 hours.

•Now there are two possibilities for the company.•1) to buy 100 watt incandescent bulb.•2) to buy 25 watt compact fluorescent bulb.

• Now the task for the economist is to calculate the LCC of both

alternatives and decide which one is better for the company.

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Case Study of a light bulb

•The costs of a light bulb can be divided into two main categories

1)Initial cost2)Operational and maintenance costs

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LCC for incandescent bulbInitial cost:

Cost of one bulb: Rs 35

Life expectancy of one bulb: 1,000 hours

# of bulbs needed to burn for10,000 hours: 10

Total Payment to light the bulb for 10,000 hours: Rs 350

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LCC for incandescent bulb

Operational and maintenance cost:

Hours required to use one kilowatt of electricity for a 100 watt bulb: (1,000 ÷ 100) = 10 hours

kWh of electricity in 10,000 hours: (10,000 ÷ # of hours) = 1,000 kWh

Total cost of electricity used:(supposing that 1 kWh costs Rs 160): (160 x 1,000) = Rs 16,000

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LCC for compact fluorescent bulb

Initial cost:

Cost of one bulb: Rs 1500

Life expectancy of one bulb: 10,000 hours

# of bulbs needed to burn for10,000 hours: 1

Total Payment to light the bulb for 10,000 hours: Rs 1,500

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LCC for compact fluorescent bulb

Operational and maintenance cost:

Hours required to use one kilowatt of electricity for a 25 watt bulb: (1,000 ÷ 25) = 40 hours

kWh of electricity in 10,000 hours: (10,000 ÷ # of hours) = 250 kWh

Total cost of electricity used:(supposing that 1 kWh costs Rs 160): (160 x 250) = Rs 4,000

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LCC of both alternatives

LCC = initial cost + operational and maintenance cost

Alternative Initial Cost Operational and maintenance cost

LCC

Incandescent Bulb

Rs 350 Rs 16,000 Rs 16,350

Compact Fluorescent Bulb

Rs 1,500 Rs 4,000 Rs 5,500

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AnalysisIt can be seen from the calculations, that the operation and maintenance costs of the bulbs are far more that their initial costs

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AnalysisThe analysis shows:

initial cost of incandescent bulb machine is much lower.But, the long term LCC is much lower for compact

fluorescent bulb.

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Conclusion

Hence a good economist would prefer compact fluorescent bulb for his company to buy for long term use because it would prove to be more economic in

long run.

The compact fluorescent bulb is Rs 10,850 less expensive over its life than the Incandescent bulb.

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References1. http://en.wikipedia.org/wiki/Life_cycle_cost_analys

is

2. http://www.coned.com/KIDS/pdf/coned_lightbulbs.pdf

3. http://www.slideshare.net/ankurbansal177/life-cycle-cost-analysis-15005487?qid=86718d3c-0adf-4ca3-b85a-8b158d429568&v=qf1&b=&from_search=4

4. http://www.slideshare.net/nirjhar_jgec/life-cycle-cost-analysis?qid=86718d3c-0adf-4ca3-b85a-8b158d429568&v=qf1&b=&from_search=1