Which type of costing can be defined as a cost management tool for reducing the overall cost of a product over its product life cycle?
|
Ali M. Eltamaly, Mohamed A. Mohamed, in Advances in Renewable Energies and Power Technologies, 2018 Life-cycle costing (LCC) has recently gained the acceptance of most researchers including the national renewable energy laboratory (NREL). LCC also known as total life-cycle costing (TLCC) is the sum of all types of costs: acquisition (ICC), O&M, and decomposition incurred over the lifetime of a project discounted to the present [34]. The objective of LCC
analysis is to select the most cost-effective (least cost) approach among various alternatives to achieve the lowest long-term cost of ownership [35]. In short, the LCC of an energy project is defined as the sum of the total initial cost (I) plus the sum of the annual operation and maintenance costs (O&M) and decomposition costs (D) at the end of the project over the project's life (n years). Thus, (8.9)
LCC=I+∑t=1T1ΔI1+
rt+∑t=1TO&M1+r
t+D1+rN Eq. (8.9) can also be written as (8.10)LCC=∑
t=1TCn1+rt As a matter of simplification, it can be assumed that there is no incremental investment
(ΔI) at any time during the life span (T1) of the project and no decomposition cost. Eq. (8.9) can now be reduced to (8.11)LCC=I+∑t=1TO&M1+rt Also, the present value for the operation and maintenance (PVOM) when tax (TX) is involved (PVOMTX ≠ 0) is given by (8.12)PVOMT≠0=TX×PVDEP+PVOM1−TX Eq. (8.12) is the present value of all operation and maintenance (O&M) costs, r% is the discount rate, TX is the tax rate of the investor, and PVDEP is the present value of depreciation [36]. For a nontaxable project, TX = 0 and (8.13)PVOMTX=0=PVDEP+PVOM Eq. (8.14) applies to a residential consumer, nonprofit organizations, and the government. For different firms, the LCC
varies as shown in Table 8.1. Table 8.1. LCC or TLCC Variations [36]
Among the advantages are, first, LCC is a managerial decision means used in choosing the best project among several alternatives. Secondly, LCC is useful for sensitivity analysis of the trade-offs of a specific investment's ICC and future operating costs to get minimum total costs during a project's lifetime. Thirdly, LCC gives insights to reducing ICC and designing equipment to minimize O&M costs. Among the disadvantages include the length of time used in LCC that might be too long because emerging new technology will make old technology outdated before the end of their economic life. In this case, more would have been most likely invested in the project than is necessary. For example, HRES is usually evaluated with a life span of 25. Technology would emerge before the end of this period that makes the equipment obsolete. This calls for a careful estimate of LCC. A second major drawback of LCC is developing a model to describe the O&M over a projects' lifetime. Available databases and predictive tools for estimating O&M are usually inadequate; hence, LCC is often very difficult, if not impossible, to apply to real problems. Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9780128131855000115 Fundamentals of Life Cycle Assessment and Specificity of BiorefineriesE. Gnansounou, in Life-Cycle Assessment of Biorefineries, 2017 2.7.2 Life Cycle CostingLCC is a method consisting of estimating the total cost of a product, taking into account the whole life cycle of the product as well as the direct and external costs. Actually estimating the cost of a product along with its life cycle or the life cycle environmental resources consumption and releases to the environment can refer to the same conceptual framework. The goals and scope have to be properly defined and data inventory including allocation issues must be considered. There is no need to consider impact assessment through characterization models in the case of LCC, as all estimates are in the same currency unit. However, it is possible to define concepts of risk cost that would be aligned to midpoint and endpoint impacts. Finally, the interpretation stage is also relevant in the case of LCC. There are several challenges in combining LCA with LCC, such as harmonizing the goals and the scope; where the goals of the interested public may be different, LCC is often undertaken for a particular actor. Therefore, the context in which the combination of both assessments is relevant must be stated. Such context may be concerned with public decisions in which the environmental impact of a new product must be complemented by its costs to the whole community, including owner cost, user cost and external cost. Fair information to consumers is another relevant context. Another challenge is avoiding double counting or inconsistent assessment. For instance, economic allocation in the case of E-LCA requires the use of cost allocation factors, whereas external costs in the case of LCC requires internalizing the environmental impacts. Fully adapting both requirements along with the life cycle is challenging. Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9780444635853000024 Reliability EngineeringIn Lees' Loss Prevention in the Process Industries (Fourth Edition), 2012 7.27.2 Applicability of Life Cycle CostingLCC is most readily applied to an asset which is ‘free-standing,’ that is, one whose failure does not cause significant disruption. In this case the optimization of the life cycle cost is essentially a trade-off between the higher capital cost of equipment with superior performance, including reliability, and the direct costs of inferior performance, including unreliability. Whatever the case with other equipment and truly free-standing equipment is perhaps not as common as might appear at first sight, that used in process plant does not fall into this category. LCC is subject to the law of diminishing returns. A policy for LCC therefore needs to include some sort of stopping rule. The returns are likely to be greatest for two types of equipment: (1) major items and (2) minor items used in large numbers. Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9780123971890000070 Is Compliance Enough?Nicholas P. Cheremisinoff Ph.D., in Environmental Managament Systems Handbook for Refinieries, 2006 How to Treat RevenuesLCCA is most appropriately used to evaluate the relative costs of design alternatives or P2 investment options that can satisfy certain expectations (specific environmental performance targets); it is not generally appropriate for evaluating the cost-effectiveness of alternative revenue-generating projects. For example, if LCC were carried out on alternate building designs constructed to produce rental income, LCCA would not be appropriate. The same principle applies if a company considers off-site recycling markets in analyzing P2 alternatives. The potential attractiveness of these kinds of revenue-generating strategies are most appropriately evaluated using benefit-cost analysis (BCA) and return-on-investment (ROI) indicators, which can supplement the LCC analysis. This is not necessarily a hard-and-fast rule. If there are small differences in revenue between one design alternative and another, then it may be appropriate to include them in LCCA by adding them to (when negative) or subtracting them from (when positive) annual operation-related costs. Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B978097651138050005X Green Design and Building EconomicsSam Kubba Ph.D., LEED AP, in Handbook of Green Building Design and Construction, 2012 10.3 Life-Cycle costingLife-cycle costing (LCC) combines capital and operating costs to determine the net economic effect of an investment, and evaluates the economic performance of additional investments that may be required for green buildings. It is based on discounting future costs and benefits to dollars of a specific reference year, referred to as present value (PV) dollars. LCC makes it feasible to intelligibly quantify costs and benefits and compare alternatives based on the same economic criterion or reference dollar. The World Business Council for Sustainable Development (WBCSD) recently came out with a study that suggests that key players in real estate and construction often misjudge the costs and benefits of green buildings. Peter Morris of Davis Langdon says,
Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B978012385128400010X Green Design and Building EconomicsSam Kubba PH.D., LEED AP, in Handbook of Green Building Design and Construction (Second Edition), 2017 10.3 Life-Cycle CostingLife-cycle costing (LCC) assists companies to be aware of where their products are in their life cycles, because in addition to the sales effects, the life-cycle of a building may have a tremendous impact on costs and profits. LCC is essentially a technique of combining both capital and operating costs to determine the net economic effect of an investment and to evaluate the economic performance of additional investments that may be required for green buildings. It is based on discounting future costs and benefits to dollars of a specific reference year that are referred to as Present Value (PV) dollars. This makes it feasible to intelligibly quantify costs and benefits and compare alternatives based on the same economic criterion or reference dollar. Moreover, sustainable buildings can be assessed as cost-effective through the LCC method, which is a way of assessing total building cost over time. It consists of: •Initial costs (design and construction). •Operating costs (energy, water/sewage, waste, recycling, and other utilities). •Maintenance, repair, and replacement costs. •Other environmental or social costs/benefits (impacts on transportation, solid waste, water, energy, infrastructure, worker productivity, outdoor air emissions, etc.). Sustainable buildings are also considered healthy buildings and therefore can decrease worker illness costs. The Blueprint has several activities that aim to better incorporate LCC into the capital outlay process. The World Business Council for Sustainable Development (WBCSD) recently came out with a study that suggests that key players in real estate and construction unfortunately often misjudge the costs and benefits of “green” buildings. Peter Morris, a principal with Davis Langdon says that “Perhaps a measure of the success of the LEED system, which was developed to provide a common basis for measurement, is the recent proliferation of alternative systems, each seeking to address some perceived imbalance or inadequacy of the LEED system, such as the amount of paperwork, the lack of weighting of credits, or the lack of focus on specific issues. Among these alternative measures are broad-based approaches, such as Green Globes, and more narrowly focused measures, such as calculations of a building’s carbon footprint or measurements of a building’s energy efficiency (the ENERGY STAR rating). All these systems are valid measures of sustainable design, but each reflects a different mix of environmental values, and each will have a different cost impact.” Also, the American Institute of Architects (AIA) recently published a Guide to Building Life Cycle Assessment in Practice which is certainly worth studying. It details the tools and tactics of balancing the costs and benefits of material and systems selection based on resource consumption and pollution from fabrication, shipping, construction, operations, and end-of-life deconstruction. 10.3.1 Initial/First CostsConstruction projects typically have initial or up-front costs which may include capital investment costs related to land acquisition, construction, or renovation and for the equipment needed to operate a facility. Land acquisition costs are normally included in the initial cost estimate if they differ among design alternatives. A typical example of this would be when comparing the cost of renovating an existing facility with new construction on purchased land. The assumed increase in first cost is the most cited reason for not incorporating green elements into a building design strategy. Some aspects of design have little or no first cost including site orientation and window and overhang placement. Other sustainable systems that incorporate additional costs in the design phase, such as an insulated shell, can be offset, for example, by the reduced cost of a smaller mechanical system. Material costs can be reduced during the construction phase of a project by the use of dimensional planning and other material efficiency strategies. Such strategies can reduce the amount of building materials needed and cut construction costs but they require forethought on the part of designers to ensure a building that creates less construction waste solely on its dimensions and structural design. An example of dimensional planning is designing rooms of 4-foot multiples, since wallboard and plywood sheets come in 4- and 8-foot lengths. Moreover, one dimension of a room can be designed in 6- or 12-foot multiples to correspond with the length of carpet and linoleum rolls which can help reduce costs. 10.3.2 Life-Cycle Cost AnalysisThis is a method for evaluating all relevant costs over time of a project, product, or measure. It takes into consideration all costs including first costs, such as capital investment costs, purchase, and installation costs; future costs, such as energy costs, operating costs, maintenance costs, capital replacement costs, financing costs; and any resale, salvage, or disposal cost, over the life-time of the project or product. LCCA is thus an engineering economic analysis (EA) tool useful for comparing the relative merit of competing project alternatives. George Paul Demos, estimating engineer at CDOT, echoes this and notes that, “The first component in an LCC equation is cost. There are two major cost categories by which projects are to be evaluated in an LCCA: initial expenses and future expenses. Initial expenses are all costs incurred prior to occupation of the facility. Future expenses are all costs incurred after occupation of the facility. Defining the exact costs of each expense category can be somewhat difficult at the time of the LCC study. However, through the use of reasonable, consistent, and well-documented assumptions, a credible LCCA can be prepared.” According to Demos, the following are considered to be major steps that are essential to performing a proper cost analysis: 1.Establish objectives 2.Identify constraints and specify assumptions 3.Define base case and identify alternatives 4.Set analysis period 5.Define level of effort for screening alternatives 6.Analyze traffic effects 7.Estimate benefits and costs relative to base case 8.Evaluate risk 9.Compare net benefits and rank alternatives 10.Make recommendations Sieglinde Fuller of the National Institute of Standards and Technology (NIST) says, “LCCA is especially useful when project alternatives that fulfill the same performance requirements, but differ with respect to initial costs and operating costs, have to be compared in order to select the one that maximizes net savings. For example, LCCA will help determine whether the incorporation of a high-performance HVAC or glazing system, which may increase initial cost but result in dramatically reduced operating and maintenance costs, is cost-effective or not.” But when it comes to budget allocation using LCCA is not beneficial. While the general consensus on the valid basis for adopting a life cycle approach, nevertheless, most building stakeholders prefer to focus on minimizing direct costs or, at best, applying short time frame payback periods. Many developers, building owners, and other stakeholders hold the view that basing opinions on anything other than a reduced direct cost approach is fiscally irresponsible, when in reality the opposite is often the case. This lack of adoption is largely due to the typical corporate structure that dissociates direct and operating costs and with most constructers often lacking the mandate to reduce operating costs, although they are mandated to reduce construction cost. This unfortunate reality is also evidenced by owner/developers, who oversee construction of buildings for their own use. The LCCA’s primary objective is to calculate the overall costs of project alternatives and to select the design that safeguards the ability of the facility to provide the lowest overall cost of ownership in line with its quality and function. The LCCA should be performed early in the design process to allow any needed design refinements or modifications to take place before finalization to optimize the LCC. Likewise, it is important to ensure that the design complies with the new IgCCs that have come into effect. Another very important and challenging task of an LCCA (or any economic evaluation method for that matter) is to evaluate and determine the economic effects of alternative designs of buildings and building systems and to be able to quantify these effects and depict them in dollar amounts. LCCA is especially suited to the evaluation of design alternatives that satisfy a required performance level, but that may have differing investment, operating, maintenance, or repair costs; and possibly different life spans. Although lowest LCC provides a straightforward and easy-to-interpret measure of economic evaluation, there are other commonly used methods such as Net Savings (or Net Benefits), Savings-to-Investment Ratio (or Savings Benefit-to-Cost Ratio), Internal Rate of Return, and Payback Period. Fuller sees them as being consistent with the lowest LCC measure of evaluation if they use the same parameters and length of study period. Almost identical approaches can be made to making cost-effective choices for building-related projects irrespective of whether it is called cost estimating, value engineering, or EA. And after identifying all costs by year and amount and discounting them to present value, they are added to arrive at total LCCs for each alternative. These include: •Initial design and construction costs •Maintenance, repair, and replacement costs •Other environmental or social costs/benefits including but not limited to: impacts on transportation, solid waste, water, energy, infrastructure, worker productivity, and outdoor air emissions, etc. •Operating costs that include energy, water/sewage, waste, recycling, and other utilities Appropriate adjustments should be placed on all dollar values expended or received over time on a comparable basis as this is necessary for the valid assessment of a project’s LCCs and benefits. Time adjustment is required because a dollar today will not have an equivalent value to a dollar in the future. Supplementary measures, however, are considered to be relative measures, i.e., they are computed for an alternative relative to a base case. Sieglinde Fuller says, “Supplementary measures of economic evaluation are Net Savings (NS), Savings-to-Investment Ratio (SIR), Adjusted Internal Rate of Return (AIRR), and Simple Payback (SPB) or Discounted Payback (DPB). They are sometimes needed to meet specific regulatory requirements. For example, the FEMP LCC rules (10 CFR 436A) require the use of either the SIR or AIRR for ranking independent projects competing for limited funding. Some federal programs require a Payback Period to be computed as a screening measure in project evaluation. NS, SIR, and AIRR are consistent with the lowest LCC of an alternative if computed and applied correctly, with the same time-adjusted input values and assumptions. Payback measures, either SPB or DPB, are only consistent with LCCA if they are calculated over the entire study period, not only for the years of the payback period.” Employing a holistic or integrated approach through active, deliberate, and full collaboration among all the players is the most likely method to achieving successful green buildings. Building-related investments typically involve a great deal of uncertainty relating to their costs and potential savings. The performing of an LCCA greatly increases the ability and likelihood of deciding on a project that can save money in the long run. Yet, this does not alleviate some of the potential uncertainty associated with the LCC results, mainly because LCCAs are typically conducted early in the design process when only estimates of costs and savings are available, rather than specific dollar amounts. This uncertainty in input values means that actual results may differ from estimated outcomes. The LCCA can be applied to any capital investment decision and is particularly relevant when high initial costs are traded for reduced future cost obligations. A 2007 study by Davis Langdon updating an earlier study, states, “It is clear from the substantial weight of evidence in the marketplace that reasonable levels of sustainable design can be incorporated into most building types at little or no additional cost. In addition, sustainable materials and systems are becoming more affordable, sustainable design elements are becoming widely accepted in the mainstream of project design, and building owners and tenants are beginning to demand and value those features.” Likewise, Ashley Katz a communications coordinator for the USGBC says, “Costs associated with building commissioning, energy modeling and additional professional services typically turn out to be a risk mitigation strategy for owners. While these aspects might add on to the project budget, they will end up saving projects money in the long run, and are also best practices for building design and construction.” Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9780128104330000101 Maximizing Machinery UptimeIn Practical Machinery Management for Process Plants, 2006 Asset ManagementThere are various perspectives on asset management. Accountants consider depreciation and operational cash-flow important. Design engineers wrestle with performance and cost trade-offs. Quality inspectors want low reject rates, and maintenance professionals hope for few equipment problems. True asset management must combine these concerns in a multi-disciplined approach. The key to optimizing life-cycle costs is to combine all professional practices. Life-cycle costing analysis is a tool that can assist, but it must be accompanied by other techniques and disciplines appropriate to the situation. Life-cycle costing has always been applied in an intuitive way in the form of cost-benefit deliberations. The main value of a formal LCC is that it quantifies life-cycle elements so that their relevance can be established and receive appropriate attention. Apply LCC early in the asset's life to achieve the greatest benefit. Start during concept formulation or, at the latest, during the design-and-specification stage. The U.S. Department of Defense (DoD, Washington) has found that decisions made in the early phases of developing a concept determine 70% of eventual life-cycle costs [1, 2]. Life-cycle costing may also be initiated in later project stages to audit O&M efficiency or to review the benefits of new modifications. In short, LCC is a valuable starting at any time. Department of Defense practitioners have found two valuable by-products of LCC: 1.Life-cycle costing requires a comprehensive review with a long list of questions and answers. As a result, the asset design is more detailed before bidding than when LCC is not used. 2.Budget forecasts are better, because more-realistic cost and time schedules are developed. Companies gain a more-comprehensive understanding of operating costs. Unreliable equipment causes significant lost production and waste. However, reliability is a fuzzy concept to most project engineers and they do not know how to address it. Life-cycle costing provides a way to evaluate long-term costs for repairs, lost production, and the initial costs of design, procurement, and installation. Through the use of LCC, more-reliable equipment can be justified using a credible analysis that is acceptable to accountants and business planners. Increasing the useful lifetime of any system costs money and causes an apparent trade against other benefits. Fig. 12-1 illustrates such a trade-off. It shows that life-cycle costs and benefits depend on good design integration and support. Hardware is only one factor in the overall picture.  Figure 12-1. Life cycle costing trade-offs. Twelve Steps in the LCC ProcessAny application of LCC analysis is likely to involve certain fundamental concepts. The relative importance of each of these concepts, and hence their level of application, will vary according to the requirements of a particular LCC analysis. In general, a LCC analysis follows the 12 basic steps illustrated in Table 12-1. The details below expand upon the table. This analysis has to involve both the users and the producers of the physical assets. The cost estimates must be based on the experience of both organizations. Table 12-1. Major steps of a life-cycle cost analysis 1. Define the problem. 2.Identify feasible alternatives. 3.Consider the alternatives in terms of system requirements – operations and maintenance. Then identify and categorize life-cycle activities. 4.Develop the cost breakdown structure (CBS). 5.Develop the cost model. 6.Estimate the appropriate costs. 7.Account for inflation and learning curves as a function of time. 8.Discount all estimated costs to a common base period. 9.Identify the “high-cost” contributors, determine cause–effect relationships. 10.Perform a sensitivity analysis and calculate the final LCC. 11.Perform a risk analysis identifying trade-offs. 12.Recommend a preferred solution, select the most desirable alternative Step 1: Define the problem. This is an obvious starting point. Step 2: Identify the feasible alternatives. Engineering must make preliminary designs of multiple configurations. This stage eliminates unworkable solutions. The concern here is with meeting performance parameters. Step 3: Consider alternatives and the system requirements. This is the first look at operations and maintenance. Identify and categorize the life-cycle activities. If nothing else, this activity raises awareness that endurance is a parameter in the design process. Step 4: Analyze the total lifetime of events for the physical asset. Include in these events all applicable future activities associated with research, development, production, construction, installation, commissioning, operation, maintenance, and disposal. In the analysis, identify all the applicable resources required during the lifetime of the asset. Some resources are used to construct the asset. Other resources are replacement parts and maintenance chemicals. Group the identified events, activities, and resources into major LCC elements, and then break them down into sub-elements. This activity has been refined into what is known as the CBS concept (Fig. 12-2). It is a convenient way of dividing the life cycle into workable sized packages for cost estimating. Figure 12-2. Cost breakdown structure (CBS). Step 5: Set up a model to define the cost factors and estimating relationships. These factors and relationships include items such as hourly labor rates, mandated profit margins, and fuel-consumption rates. The actual factors and relationships used in a LCC analysis vary according to the nature of the asset and the business operations of the user and vendors. Step 6: Work up the cost of each of the life-cycle elements. The previously determined cost estimating factors and relationships are applied to cost models for each of the elements. Step 7: Account for inflation and learning curves. Set the accuracy required in the calculated life-cycle cost. Inflation will have strong effects on the life-cycle cost of today's physical assets. However, future changes in inflation rates are difficult to predict. This is a subject that requires the judgment of outside economists and accountants before being applied in a LCC analysis. Sometimes, it is easier to assume zero inflation and do the analysis rather than have no answers. The effect of learning curves is probably a bit more predictable. It applies when several identical physical assets will be produced or constructed over time. A learning curve is the function used to describe the non-linear relationship between skill acquisition and time elapsed during a project or plant startup phase. Step 8: Discount all the estimated costs to a base period. Unlike inflation, discounting is not optional during LCC analyses, where two or more similar assets are being compared. The differences are important here because they will likely result in different levels of cash-flow requirements at different points of the life cycle. Discounting yields a common basis for financial comparison, by removing the effects of time differences. The process is based on finance mathematics and uses the concepts of sinking fund, present value, and capital recovery. Consult any cost estimating textbook for assistance. Step 9: Identify the high-cost contributors. There are facilities in which one or two costs overwhelm all the others. It is a shortcut to concentrate on such items, because they promise the highest payoff. The high cost is usually the result of an underlying cause. Search for the cause and eliminate it or mitigate it. Step 10: Calculate the final LCC, using an appropriate cost model. In many cases, this is likely to entail a straight summation of the cost breakdown elements. But, it can involve far more complex mathematics, according to the characteristics of the asset's life cycle and the management approach used for the LCC analysis. In the overwhelming majority of cases, the model should include a sensitivity analysis. Sensitivity analysis consists of evaluating the results displayed by a model (mathematical or other) upon changing one or more input variables. In practice, this is seen as a very large spreadsheet activity. It is a lot of work, but has a big payoff. The Section “Repairing pumps” (p. 207) shows a simple example. Step 11: Perform a risk analysis. The LCC technique can be useful when applied to situations that consider alternative decisions on a cost basis. These are basically trade-offs. A few typical situations are: •Balancing the relative levels of reliability and maintainability for a given asset against a desired level of availability. •Deciding on the most cost-effective maintenance policy for sub-elements of a given asset. The usual choice is predictive, preventive, or emergency maintenance. Deciding which asset to procure when faced with two or more that will satisfy all specified requirements. •Deciding whether to modify an asset or repair it without changing the current configuration. •Deciding whether to retain or dispose of an existing asset. Step 12: Recommend a solution. Life-cycle costing can be applied to assist in logical management of an asset, even without looking at alternatives. Examples of this approach are: •Identifying the exact subsystems where design simplification and cost control will produce major cost reduction and longer life cycles. •Establishing a more accurate budget for the actual project. •Understanding the inner workings of an asset. This sets up a more effective management organization and better control procedures. Read full chapter URL: https://www.sciencedirect.com/science/article/pii/S1874694206800143 PRINCIPLES OF ECONOMICS FOR SOLAR ENERGY INVESTMENTS*Frank Kreith, in Solar Energy Conversion II, 1981 1.1 LIFE-CYCLE COSTING (LCC) METHODLife-cycle costing (LCC) is a term commonly used to describe a general method of economic evaluation by which all relevant costs over the life of a project are accounted for when determing the economic efficiency of the project. With its emphasis on costs, it is a suitable method for evaluating the economic feasibility of projects such as energy conservation or solar energy which realize their benefits primarily through fuel cost savings. Applied to solar energy investment decisions, the method requires an assessment of the following kinds of solar-related costs: (1) system acquisition and installation costs (capital costs); (2) system replacement costs; (3) maintenance and repair costs; (4) operating energy costs; (5) taxes and incentives; and (6) salvage or resale value. These costs are required for all components necessary for the solar energy system's operation including (1) solar collectors; (2) thermal storage; (3) distribution system; (4) controls, motors, pumps, fans, and other ancillary equipment; (5) special system features, e.g., building roof and wall modifications; and (6) the auxilliary energy system. As a basis for comparison, an assessment of the same kinds of costs is also needed for the nonsolar energy or conservation system which could be used in lieu of a solar energy system. Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9780080253886500714 24th European Symposium on Computer Aided Process EngineeringJun Zhang, ... Yu Qian, in Computer Aided Chemical Engineering, 2014 2.2 Life cycle costing modelingLife cycle costing methodology is for cost accounting of a product over its lifetime. Life cycle cost (CLC) consists of internal cost (CIn) and external cost (CEx). CIn is the conventional cost related to manufacturing, labor, overheads, etc. CEx is the potential cost for environmental, health, and societal impacts (Fthenakis and Alsema, 2006). CIn in each life cycle stage could be formulated as Eq. (1), where i represents life cycle stages, Cf the cost of raw materials, Clb labor cost, Ia annual fixed asset investment, Sb sales income of by-products, and CO other cost. (1)CIn,i=∑Cf,i+Cib,i+Ia,i +CO,i−∑Sb,i CEx is the marginal damage costs based on willingness to pay to avoid the damage caused by environmental emissions (Fahlén and Ahlgren, 2010). In fossil fuel based processes, it is associated with the potential costs for emissions, including CO2, CO, CH4, VOC, SO2, NOX, PM, etc. Reported by different researchers and institutes, there are diverse values of CEx of a certain kind of emission depending on the environmental carrying capacity of each region (CAFE, 2008; NEEDS, 2009). In this paper, we will not include the variation of CEx. We simply fix the unit CEx of a kind of emission according to Pa’s work (Pa et al., 2013), which gave the comprehensive CEx of the emissions as shown in Table 1. CEx could be calculated by using Eq. (2), where j represents environmental emission, Ej the unit CEx for j, and ej the emission quantity of j. Table 1. Unit CEx for environmental emissions (Pa et al., 2013).
(2)CEx=∑iCEx,i= ∑i∑jEj,iej,i Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9780444634566501666 Building-integrated photovoltaics (BIPV)C. Ferrara, ... W. Sprenger, in The Performance of Photovoltaic (PV) System, 2017 8.4.4 Economic assessment of BIPV systemsThe life-cycle costing model developed at Fraunhofer ISE for BIPV systems considers three main phases of the system lifetime from the point of view of the system owner: the investment/installation phase, the operation phase and the demolition/disposal phase [13]. Throughout the system lifetime, which is typically assumed to be 20 or 25 years, the annual cash flows (income and expenditure) are determined, taking financing costs and inflation rates into account, to determine the net present value of the whole system at any given time. The cash flows during the first phase are mainly outward, including the investment for system components (BIPV modules, cabling, inverters, mounting structure, monitoring equipment) and planning, authorization and installation costs. However, a bonus representing the cost of substituted building components may also be taken into account. In doing so, it is useful to define the system boundary to exclude components such as substructure that could equally well be used for mounting BIPV or the substituted, conventional building components. During operation, ongoing expenses for cleaning, maintenance, monitoring and administration are accompanied by income resulting from the electricity generated by the system. This may be in the form of real income from feeding electricity into the public grid, or saved expenditure for externally generated electricity due to in-house usage of the electricity generated on site. Depending on their thermal and optical properties and their function within the building envelope, BIPV modules may also affect the building's thermal and lighting energy balance; the financial effect can also be included in the cash flows for the operation phase. Finally, demolition and disposal will again incur expenses, but income may also be generated from selling the component materials (eg, copper cables) for recycling. Depending on the relative value of the inward and outward cash flows, BIPV systems can amortise themselves within their system lifetime, a property not otherwise expected of or found in conventional, ‘passive’ building components. Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9781782423362000082 What are the types of life cycle costing?Life cycle costing calculation generally involves adding six types of costs; purchase costs, maintenance costs, operational costs, financing costs, depreciation costs, and end-of-life costs.
What is life cycle costing of a product?Product lifecycle costing is the accumulation of a product's costs over its whole life, from inception to abandonment. The typical stages of a product's whole life are: Introduction. Growth. Maturity.
For what type of firms is life cycle costing most appropriate and why? Life-cycle costing is the most appropriate on businesses with long-term span of planning that focuses on the servicing costs, firms that has upstream and downstream costs. An example that I think is in the gaming industry, because games took several years to be completed before the public has to play it.
How does target costing reduce costs?Target costing system considers products design and processes as a major factor in cost management. In target costing, a lot of time is spent on the design phase and by eliminating the costly and time-consuming changes, time-to- market reduces.
|
