Life Cycle Cost Analysis
Logistics Management and Operations, TLMT 353, Spring 15
American Public University
Professor Ernest Hughes
29 June 2015
Life Cycle Cost Analysis
Life cycle cost analysis (LCCA) is a process of evaluating the costs that can be identified and quantified, to include all factors like acquisition, sustaining, maintaining and final disposition of the item, that can have an impact on the whole system cost during its life span. (Blanchard, 2004). All costs associated are required for an accurate analysis. These areas include research, design and development, production, energy costs, maintenance and support, system retirement and material recycling or disposal activities (Blanchard, 2004). This evaluation is used to make an informed decision between options; and is the application used to determine possible subjective factors such as fuel cost adjustments, component reliability, and maintenance costs are also included in sustainment of the program over its life cycle. Once you have defined the system requirements for the LCCA, the system lifecycle and activities are captured to set the baseline for the cost breakdown structure (CBS). Next the development of the cost breakdown structure capturing all cost from initial to summarization of costs. The data inmput requirements will vary in degree depending on the particular project and level of intricacy. Each category of the CBS will have an associated cost according to the cost estimating relationships (CER). A cost model must be realted to the current project. In other words do not use a Cost model for a building project if you are working on a production project. Develop a cost profile covering the entire life cycle of the project. Next evaluate the cause and effect relationships that may require a redesign of the project or process. Evaluate the LCCA to ensure that the key areas of concern are represented and that the case is valid to the specifications presented. Input the data collected into a pareto diagram with priorities, this will allow for a quicker evaluation of data and a better informed decision tool. Next the team will identify problem areas and possible solutions for review. With all of the data collected and presented a preferred course of action can now be chosen with limited risk. The framework factors of a life cycle cost analysis are items such as: system requirements, maintenance concept, technical performance measures (TPM) cost breakdown structure (CBS), cost estimating, evaluation of alternatives, applications and benefits. A logistics cost analysis needs a solid requirement for the evaluation. What are the intended specifications or requirements? The team must decide the best course of action for the analysis. With the initial LCCA cost estimating is required to represent the unknown values; this requires utilizing averages and educated guesses based off of experience. List the possible constraints for the project. (What is Life Cycle Costing? n.d.) In conducting a logistics cycle cost analysis, an assessment of the future resource requirements is necessary; this is a line item cost for relevant assets. When an assessment is comparing two like items, a comparative costs of potential acquisitions or appraisal of the items will be added to the analysis. Source of supply costs could be an entire separate LCCA, once decided will be included as a cost for the analysis. Required resources and costs that will be used in evaluating cost the frequent upgrades to technology cannot be overlooked. Computer systems often require an upgrade to remain current, and this cost money. Operational Maintenance costs such as preventive and corrective maintenance support over the life cycle. Life expectancy of the asset must be evaluated because it could be a significant cost if one product life expectancy is ten years while the other option may only have a life...
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