Life Cycle Cost Analyses

A life cycle cost analysis involves the analysis of the costs of a system or a component over its entire life span. Typical costs for a system may include:

Acquisition costs (or design and development costs).
Operating costs:

Cost of failures.
Cost of repairs.
Cost for spares.
Downtime costs.
Loss of production.

Disposal costs.

A complete life cycle cost (LCC) analysis may also include other costs, as well as other accounting/financial elements (such as discount rates, interest rates, depreciation, present value of money, etc.).

For the purpose of this reference, it is sufficient to say that if one has all the required cost values (inputs), then a complete LCC analysis can be performed easily in a spreadsheet, since it really involves summations of costs and perhaps some computations involving interest rates. With respect to the cost inputs for such an analysis, the costs involved are either deterministic (such as acquisition costs, disposal costs, etc.) or probabilistic (such as cost of failures, repairs, spares, downtime, etc.). Most of the probabilistic costs are directly related to the reliability and maintainability characteristics of the system.

The estimations of the associated probabilistic costs is the challenging aspect of LCC analysis. In this section, we will look at using some of the cost inputs associated with BlockSim to obtain such costs. We will explore that using the following example.

Obtaining Costs for a LCC Analysis

Consider the manufacturing line (or system) shown in Figure 9.14. The block properties are given in Figure 9.15, pool properties in Figure 9.16 and crew properties in Figure 9.17. All blocks identified with the same letter have the same properties (i.e. A = A1 = A2, B = B1 = B2 = B3 = B4 and C = C1 = C2 = C3 = C4). Figure 9.18 shows this system in BlockSim.

Figure 9.14: Manufacturing line diagram.

Figure 9.15: Properties for blocks in manufacturing line.

Figure 9.16: Pool properties for maintenance on blocks in the manufacturing line.

Figure 9.17: Crew properties for maintenance on blocks in the manufacturing line.

Figure 9.18: The system in BlockSim.

This system was then analyzed in BlockSim for a period of operation of 8,760 hours, or one year. The simulation settings are shown in Figure 9.19.

Figure 9.19: Simulation settings in BlockSim.

The system overview is shown in Figure 9.20. Most of the variable costs of interest were obtained directly from BlockSim. Figure 9.21 shows the overall system costs. (Note: If further detail, or more granularity, were needed, one would look at additional results. For the purposes of this example, the high level results of Figure 9.21 are sufficient.)

Figure 9.20: System overview from BlockSim.

Figure 9.21: System costs summary from BlockSim.

Our total costs from the summary are $121,338. Note that an additional cost was defined in the problem statement that is not included in the summary. This cost, the operating cost per item per hour of operation, can be obtained by looking at the uptime of each block and then multiplying this by the cost per hour. This is given next.

If we also assume a revenue of $100 per unit produced, then the total revenue is our throughput times the per unit revenue, or 31,651 x $100 = $3,165,100. The total costs are 121,388 + 313,254 = $434,642.