LCC - Life Cycle Cost and RAMS. Strategy for making decisions about the real cost of the equipment or systems.



The LCC is the total cost of the product throughout its entire life cycle , from its start-up to its withdrawal from service. They are a set of studies that evaluate the TOTAL cost of a product, system or installation, taking into account not only its purchase or acquisition value ( CAPEX ) but also its total cost to be used ( OPEX ): cost of its maintenance, cost of its spare parts, cost of dismantling, the cost of keeping the installation in service in degraded mode, penalties for taking the system out of service, etc. , as well as its costs srecycling of material, among others. In this way the LCC and the RAMS allow the REAL evaluation of the acquisition of an asset.

During the last decades, life cycle costs and their analysis are of increasing importance. The rolling stock operators and the infrastructure manager aim to know and reduce the LCC of their assets. Knowledge of the asset's LCC is the basis for financial planning and can be used for decision making in the case of various alternatives.

In the rail sector , LCC reduction is necessary due to increased cost pressure on public companies and increased competition based on the liberalization of the rail sector.

Above all for rolling stock. Recall that the Council Directive 91/400 / EEC (European Union Council 1991) requires that the operator of rolling stock and infrastructure are legal entities separ as well and that no operator can be discriminated rolling stock. Simplifying the concept, there is only one track, but there can be many trains and, therefore, an aggressive commercial strategy in prices (we already lived it a few years ago with the airline sector), requires a careful analysis of costs and, therefore, of the LCC .

When is useful LCC analysis

As we can see, therefore, the objective of the LCC is to allow a rigorous and objective decision making: to compare the total cost of different investment alternatives, identify the real cost drivers and be able to evaluate optimizations or improvements that maximize the impact on the account of operation of the company:

The relationship between the Life Cycle phases and the LCC

The EN 60300-3-3 standard (Reliability management - Life cycle cost calculation), brings together the costs associated with the life cycle in 5 different phases of the system life cycle (we can consider it a tosimplification of the 12 phases of the CENELEC EN 50126 standard ). This regulation is a good starting point to unify criteria and establish a point of reference for the interlocution of this type of calculations, which we can consider of a sensitive nature for decision-making.

For each of these phases, a cost can be associated that ends up providing the full life cycle cost. Before entering each of the phases, the LLC is very commonly simplified into three major items: Acquisition Cost, Ownership Cost and Elimination Cost . As a general rule, it is important to remember the following criteria: acquisition costs are usually easy to account for and take into account, but ownership and disposal costs can be very difficult to predict and calculate.  

Phase 1. Concept and definition. The costs associated with this phase are attributed to activities aimed at ensuring the viability of the product under consideration. That is, tasks associated with engineering costs: market research, project management, product conception and design analysis, preparation of the product requirements specification.

Phase 2. Design and development . Again engineering costs, compliance with the product requirements specification and providing proof of its compliance: project management, design engineering, RAMS engineering , design documentation, prototype manufacturing, software development, testing and evaluation, production engineering and planning, supplier selection, validation and quality management.

Phase 3. Manufacturing and installation . Manufacture of project equipment or products. It is important for projects with several units, to divide the costs (= activities) into recurring and non-recurring. The first, as we know, will be multiplied by the units that we manufacture:

  • non-recurring : industrialization and operations engineering; construction of production assets, including tools and test benches, initial training, documentation and software for production and test equipment.
  • recurring : production management, asset management for production, stockpiling of materials, manufacturing, quality control - verification - inspection, packaging, storage, transport.

Phase 4. Operation and maintenance (preventive and corrective) . The theoretically longest stage of the entire life cycle , operating, maintenance and support costs are incurred: initial training of operating personnel, spare parts, special tools for the system, consumables, energy, replacement of parts for limited life, manual construction site.

To all this, Add costs to losses or capacity, including compensation costs and loss of income.

It is important not to forget also at this point the warranty costs including penalties, as well as possible liability costs and costs to provide alternative services against system failures. These last concepts are closely linked to RAMS Engineering .

Phase5. Elimination . To take into account, for example, environmental law protection of each country and the recycling of equipment that can have very high associated costs (special attention to chemical products). The decommissioning processes also include security assurance processes that should be taken into account.

On a practical level, as we can see, the key to a good development of LCC is a detailed breakdown of costs, breaking down the costs incurred during the phases of the system life cycle. One of the approaches we recommend at LEEDEO ENGINEERING for identifying cost elements is breaking down the product into lower tiers, cost categories, and life cycle phases. If the decomposition can be in line with the decomposition developed in the system architecture of the design, the LCC calculation will not only make sense within the overall project, but also , what's more, we can think about reusing saids calculations when we reuse our components in other projects. Summarizing,

  • breakdown of the product to lower levels,
  • phased decomposition of the product or system life cycle,
  • categorize the costs of applicable resources such as labor, materials, energy or fuel, transportation, training, documentation, etc.

This approach has a systematic and orderly approach, therefore, it is reliable and repeatable.

To these 3 decompositions we also recommend, as we have seen before, the division between recurring (or variable) and non-recurring (fixed) costs.

Estimate of costs associated with the LCC calculation

The methodology or criteria for calculating the costs associated with the LCC are always complex, both for the development and for its approval normally to the client . Faced with this possible disparity of opinions, it is always useful to resort to a reference standard. In this case EN 60300-3-3 .

This regulation proposes three strategies for estimating costs that we also use at LEEDEO ENGINEERING , usually in combination :

  • Engineering cost method : direct estimation of the cost attributes of the elements, examining the product component by component prior to its conceptual division.
  • Cost method by analogy : estimate based to in previous experiences or similar technologies or systems.
  • Parametric cost method : at a simplified level, use of standard formulas and / or methodologies of the sector or of the manufacturer or client itself. For example, the time for corrective maintenance is defined in the IEC 60050-191 Standard . This time multiplied by the price / hour of the maintenance technicians, gives us the cost of corrective maintenance. This methodology, as identified, contributes a lot of solvency to the calculations.

LEEDEO ENGINEERING offers its clients the knowledge, services and tools / templates calculations related to the LCC - life cycle cost of its products, systems or facilities. Feel free to contact us.

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