UNDERSTAND THE CONCEPT
Lifecycle cost analysis compares the cost of owning and using alternatives over an agreed study period. Include acquisition and installation, energy, consumables, maintenance, planned replacements and end-of-life effects that are relevant to the decision. Alternatives should deliver comparable required service. A cheaper asset that cannot meet the duty is not a valid low-cost option. Record service life, utilization and other assumptions so the comparison can be challenged constructively.
Cash flows occur at different times, so a formal analysis may discount them to a common date using an approved method and rate. Keep inflation and discount assumptions consistent. Test sensitive variables such as energy price, operating hours and overhaul frequency instead of presenting one scenario as certain. Lifecycle economics also sit alongside reliability, maintainability and other requirements that may not be captured adequately by a single cost total. Update the model when actual operating evidence becomes available.
Questions to take back to your team
- Do alternatives meet the same required duty?
- Are timing, study period and discount assumptions consistent?
- Which operating assumptions could reverse the ranking?
Further reading
Explore the primary references below. Requirements and applicability depend on your organization and jurisdiction.
