Reliability HotWire: eMagazine for the Reliability Professional
Reliability HotWire

Issue 47, January 2005

Hot Topics

Life Cycle Cost Analysis

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 article, it is sufficient to say that if you have all of 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. Estimating the associated probabilistic costs is the challenging aspect of LCC analysis. BlockSim can be used to obtain such costs.


Consider the manufacturing line (or system) shown in Figure 1. The block properties are given in Figure 2, pool properties in Figure 3 and the crew properties are shown in Figure 4. 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 5 shows this system in BlockSim.

Figure 1: Manufacturing line diagram

Figure 2: Block properties

Figure 3: Pool properties

Crew properties

Figure 4: Crew properties

Figure 5: System in BlockSim
[Click to Enlarge]

This system is then analyzed in BlockSim for a period of operation of 8,760 hours, or one year. Figure 6 shows the simulation settings.

Figure 6: Simulation settings

Figure 7 shows the system overview. Most of the variable costs of interest were obtained directly from BlockSim. Figure 8 shows the overall system costs. (Note: If further detail were needed, you could look at additional results. For the purposes of this example, the high level results of Figure 8 are sufficient.)

Figure 7: System overview from BlockSim

Figure 8: System cost summary from BlockSim

The 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. The results are shown next.

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

ReliaSoft Corporation

Copyright 2005 ReliaSoft Corporation, ALL RIGHTS RESERVED