DEUTSCHE NORM Entwurf Januar 2000 Zusatzliche Informationen zur IEC 60300-3-3: =a Zuverlassigkeitsmanagement DIN Teil 3-3: Anwendungsleitfaden — Betrachtung der Lebenszykluskosten (IEC 56/655/0D : 1999) IEC 56/655/CD Einspriiche bis 29. Feb 2000 ICS 03.120.10; 29.020 ‘Supporting information to IEC 60300-3-3: Dependability management — Part 3-3: Application guide — Life cycle costing (IEC 56/655/CD : 1999) nale Schriftstick IEC 56/655/CD:1999-02, Supporting information to IEC 60300-3-3: Dependability management — Part 3-3: Application guide — cycle costing", ist unverandert in diesen deutschen Norm-Entwurf Gibernommen worden. Anwendungswarnvermerk Dieser Norm-Entwurf wird der Offentlichkeit zur Prifung und Stellungnahme vorgelegt. Weil die beabsichtigte Norm von der vorliegenden Fassung abweichen kann, ist die Anwendung dieses Entwurfes besonders zu vereinbaren. Stellungnahmen werden erbeten an die Deutsche Elektrotechnische Kommission im DIN und VDE (DKE), Stresemannallee 15, 60596 Frankfurt am Main, Fortsetzung Seite 2 und 61 Seiten IEC-Original Deutsche Elektrotechnische Kommission im DIN und VDE (DKE) {© ON Doutchos iat fr Nerang a Joe Art de VrelaBgung auch aezugeveie, Ref. Ne E DIN IEC 56/655/CD : 2000-01 ‘ut it Gonoriguns dae IN Destsces Ia We Normang eV, Barn gett tape Alainvataul det Noman uch Bau Verag Grr 10772 BarnSeite 2 E DIN IEC 56/655/CD:2000-01 Nationales Vorwort Dieser Norm-Entwurf enthalt die englische Originalfassung des Intemationalen Norm-Entwurfs (Committee Draft (CD)] IEC 56/655/CD:1899-02 "Supporting information to IEC 60300-3-3: Dependability management Part 3-3: Application guide - Life cycle costing" Das Prasidium des DIN hat mit Prasidialbeschlu8 1/78 festgelegt, da deutsche Norm-Entwurfe, deren Inhalt sich auf internationale Arbeitsergebnisse der IEC grindet, unter bestimmten Bedingungen allein in tenglischer Sprache verdffentlicht werden darfen. Diese Bedingungen sind far diesen Norm-Entwurf erfallt. Er steht nicht unmittelbar in Zusammenhang mit Rechtsvorschriften und ist nicht als Sicherheitsnorm anzusehen. Es kann davon ausgegangen werden, da die Anwender Gber hinreichende englische Sprachkenntnisse verfogen. Der Internationale Norm-Entwurf wurde vom TC 56 "Dependability" der Internationalen Elektrotechnischen Kommission (IEC) erarbeitet. Es wird darauf aufmerksam gemacht, da die Kommentierungsfrist zum internationalen Sekretariats-Entwurt (Committee Draft [CD)) IEC 56/655/CD bereits aufgelaufen ist Stellungnahmen, die aufgrund des Vorliegenden deutschen Norm-Entwurts bei der OKE abgegeben werden, werden fur den nachfolgenden internationalen Entwurt berocksichtigt werden. Far den vorliegenden Norm-Entwurt ist das nationale Arbeitsgremium K 132 ,Zuverlassigkeit" der Deutschen Elektrotechnischen Kommission im DIN und VDE (DKE) zustandig. Far den Fall einer undatierten Verweisung im normativen Text (Verweisung auf eine Norm oder andere Unterlage ohne Angabe des Ausgabedatums und ohne Hinweis auf eine Abschnittsnummer, eine Tabelle, ein Bild usw.) bezieht sich die Verweisung auf die jewells neueste gdltige Ausgabe der in Bezug genommenen Norm oder anderen Unterlage. For den Fall einer datierten Verweisung im normativen Text bezieht sich die Verweisung immer auf die in Bezug genommene Ausgabe der Norm oder anderen Unterlage. Der Zusammenhang der zitierten Normen und anderen Unterlagen mit den entsprechenden Deutschen ‘Normen und anderen Unterlagen ist nachstehend wiedergegeben. Zum Zeitpunkt der Veroffentlichung dieser Norm waren die angegebenen Ausgaben galtig. 1EC hat 1997 die Benummerung der 1EC-Publikationen geandert. Zu den bisher verwendeten Normnummern wird jeweils 60 000 addiert. So ist zum Beispiel aus IEC 68 nun IEC 60068 geworden. Europaische Norm |Internationale Norm | Deutsche Norm Klassifikation im VDE-Vorschriftenwerk - IEC 60300-3-9:1995 | E DIN IEC 56(Sec)410:1995-03 EN ISO 14040:1997 |1SO 14040:1997 DIN EN ISO 14040:1997-08 - Nationaler Anhang NA _(informativ) Literaturhinweise E DIN IEC 56(Sec)410 Analyse des Risikos technischer Systeme ~ Leitfaden (IEC 56(Sec)410:1994) DIN EN ISO 14040 Umweltmanagement ~ Okobilanz ~ Prinzipien und allgemeine Anforderungen (ISO 14040:1897); Jeutsche Fassung EN ISO 14040:199760300-3-3 © 1EC:199X werounrona 10 Presentation of results. 60300-3-3 © CEI:199X Contents Page Normative references. Terminology.. Life cycle cost concept.. Dependability and LCC relationship .. LCC modelling Example of a LCC analysis . LCC calculations and Economic factors . Accounting method: Appendices A - Examples of LCC model development 43 B- Examples of a product breakdown structure 82 C- Use of spreadsheet for LCC analysis .... 87 56/655/CD60300-3-3 © IEC:199X -3- 60300-3-3 © CEI:199X Supporting information to DEPENDABILITY MANAGEMENT — Part 3-3: Application guide — Life cycle costing 1 General ‘The IEC 60300 series of standards explain the procedures for implementing a dependability program during all phases of the life cycle of a product in order to achieve specified levels of ependability. TEC 6030-1 is the top level document which provides guidance on dependability programme management. TEC 6030-2 is the next level down and defines the tasks/elements that may need to be carried out to achieve dependability objectives and gives guidance on how the tasks should be undertaken. 1EC 60300-3 encompasses a series of Application Guides which develop the tasks in IEC 60300-2 with respect to specific areas of a product. One of these Application Guides is IEC 60300-3-3, Lite Cycle Costing. IEC 60300-3-3 is a generic guideline on life cycle costing and covers all applications. ‘The material presented in this annex is also intentionally general in nature but more detailed. ‘The examples included illustrate how LCC principles are applied in practi it may be advantageous for particular organisations, or industry sectors, to extract those parts of this annex relevant to their LCC needs and produce a rationalised approach to LCC. This could take the form of industry-specific guidelines or customised LCC models as shown in Figure 1. {n this Annex more detailed information is given about: - development of cost breakdown structure = LCC model development - inclusion of dependability costs in LCC models = treatment of costs including inflation and taxation + costs associated with risk and life cycle assessment and LCC. 56/655/CD60300-3-3 © IEC:199x -4- 60300-3-3 © CEI:199X Product management Dependability Other standards programme TEC 603007 + Quality management + Environment etc, Dependability programme ele- ‘ments and tasks lec 6030-2 Application [EC 60300-3-1 IEC 60300-3-3 IEC 60300-3-n guides + | Lite Cycle Cost |- 5 IEC documents Industry experts responsibilities (aN Application specif ‘guidelines Figure 1. Application specific guidelines 56/655/CD60300-3-3 © IEC:199x 60300-3-3 © CEI:199X 2 Normative references ‘Normative references are given in the main document, i.e. 1EC 60300-3-3. The following normative documents contain provisions which, through reference in this text, constitute provisions of this document. 1EC 60300-; : Risk analysis of technological systems. 180 14040: Environmental management - Life cycle assessment - Principles and framework. 3 Terminology For the purpose of this annex the terms and definitions of IEC 60300-1, IEC 6030-2 and IEC '50(191) apply. In addition, for the purpose of this annex, the terms and explanations, given in alphabetical order below, are used: 34 Base date AA fixed point in time set as the common reference for discounting the cash flows into or out of an investment project, for management accounting purposes. 3.2 Cost category A descriptor applied to an item of expenditure (forecast or actual) to enable the costs of a Project to be aggregated by the nature of the expenditure, e.g., labour, materials, energy, administration, etc, as an aid to project management. 33 Discounted cost: ‘The result when real cost is discounted by the real discount rate, or when nominal cost is discounted by the nominal discount rate. 34 Discount rate: The interest rate at which the streams of cash intlows and outflows associated with an investment project are to be discounted 35 Internal rate of return (IRR): ‘The specitic value of the discount rete that would produce @ net present value of zero, for all the discounted streams of cash inflows and outflows associated with the project. 3.6 Net present value (NPV): The net value, now, of all future items of income and expenditure related to an investment project, at a given rate of return, 37 Nominal cost: The expected price that will be paid when a cost is due to be paid, including estimated changes in price due to forecast changes in efficiency, inflation/detlation, technology and the like, 56/655/CD60300-3-3 © IEC:199X -6- 60300-3-3 © CEI:199X 3.8 Present value: fs the concept that a sum of money invested today will earn interest. A UC today is worth more than a UC to be received in the future by the amount of interest it earns. It is the amount needed to be invested now for n years at an interest rate r% to earn a future sum of money. 3.9 Real cost: The cost expressed in values of the base date, including estimated changes in price due to forecast changes in efficiency and technology, but excluding general price inflation and deflation. 3.10 u Units of Currency. 4 Life cycle cost concept 4.1 General Life cycle costing is the process of economic analysis to assess the total cost of acquisition and ownership of a product. It can be applied to the whole life cycle of a product of to parts or combinations of different life cycle phases. The primary objective of life cycle costing is to evaluate and optimize a product's life cycle costs while satistying specified performance, safety, reliability, maintainability, environmental and other requirements. The aim is to provide input to decisions making in all phases {especially in early phases) of a product's life cycle. The more common types of decisions for which the life cycle costing process is used to provide input are presented in IEC 60300-3-3, clause 4. Fundamental to the concept of life cycle costing is a basic understanding of a product life cycle and the activities that are performed during these phases. The life cycle phases are defined in IEC 6030-2. ‘One of the reasons for performing Life Cycle Cost analyses is to identify cost drivers. The main cost drivers may differ considerably from one application to another. A cost that other cases. ‘An important objective in the preparation of application specific LCC models is to identity costs that may have a major impact on the LCC or may be of special interest for that specific application. Equally important is to identify costs that may only influence the LCC to a very smail extent, The life cycie cost may be estimated for: ~ a single product, for example, a car one intends to buy - a whole population, for example, all cars of a certain model a system, for example @ power plant ~ a specific industrial process, for example, manufacture of electronic components +a maintenance organization. Betore developing an LCC model, objective and application for use of the model as well as different analysis view points, should be defined. 96/655/CD60300-3-3 © 1EC:199X -7- 60300-3-3 © CEI:199X 42 LCC model adaptation ‘See IEC 300-3-3, clause 7.3. ‘The LCC model may be adapted, for example, to make it possible to: = determine whether a prospective investment is viable = choose among different alternatives concerning design, manufacture, maintenance, disposal, etc. = choose among different suppliers and products = use it for contractual and verification purposes = evaluate the effects of different maintenance concepts/approaches = calculate the economical consequences associated with uncertainties and risks = analyse costs associated with the'environmental impact of the product. An LCC model of sufficient detail to meet the objectives and which is tailored to suit the ‘specific application may be adapted as required. This includes the following steps: ‘a) define the scope and physical bounds of the analysis in terms of hardware, software etc. b) define the output, reports etc. ¢) define resources that you need to use ) identify data required for the analysis, ©) identity uncertainties and risks associated with different costs 1) identity costs which will not have significant impact on the overall LCC for the industry or application under consideration 9) identify methods to integrate diferent cost elements into an LCC model which will provide the outputs required ‘h)_ verify the model and review the model to ensure that it meets the intended purpose 5 Dependability and LCC relationship As stated in 1EC 60300-1, clause 5.1, reliability, maintainability and other dependability considerations should be an integral part of the design process and LCC evaluations. These factors should be critically reviewed when preparing product specifications, and be continually evaluated throughout the design phases in order io optimize product design to minimize life cycle cost. Figure 2 below describes dependability factors translated into operation and maintenance costs. Costs associated with reliability, maintainability and maintenance support performance, which are not apparent, but need to be accounted for in life cycle cost models, may include the following, as appropriate: = unavailability costs (including costs associated with loss of product function) See IEC 60300-3-3, clause 5.2. = warranty costs and costs for warranty-types agreements. ‘See IEC 60300-3-3, clause 5.3. = liability costs. See IEC 60300-3-3, clause 5.4 56/655/cD60300-3-3 © 1EC:199X 60300-3-3 © CEI:199X cost/hr) + (Average Cost of Spares per failure) ) Maintenance Unavailability 1.2.1 Loss of revenue = f (affected function, MADT, eet 2, MTTR, ete.) Availability | Dependability 14 AU, ; Reliability Maintainability || MaintSupport | ce i costs MITE over! muo,MaD |i { y f Failures | | Repair | Prevent. | 1 Cost of 4 investment for 1} Logistic Support ¥ ewer Quantity x (MMH x cost/hr) of material Cost of * {60st of matera)) Preventive i Maintenance y z x ( (Average Cost of Maintenance Support per , Cost of failure) + (MMHsre x cost/hr) + (MMHworksnor X C) Corrective In accordan: 191) the followin A= Availability; MADT = Mean Accumulated Down Time MTTF = Mean Time To Failure; z = failure intensity; A = failure rate MRT = Mean Repair Time; MTD = Mean Technical Delay; MLD = Mean Logistic Delay MAD = Mean Administrative Delay; MMH = Maintenance Man-Hours Mean Time To Restoration, MTTR = MRT + MTD + MLD + MAD Figure 2 ~ Principal and LCC for the Operation and ‘Maintenance phase 6 LCC modelling 6.1 General In order to estimate the total life cycle cost of a product, or a defined part of its lite cycle Cost, it is necessary to first estimate the cost for applicable cost elements. To do this, each cost element has to be individually identified. See IEC 60300-3-3, clause 6.2. The cost breakdown structure presents a breakdown of costs incurred over the major phases (or phases of interest) of the life cycle of a product, The product/work breakdown structure is composed of a detailed breakdown of hardware, services, and data identifying all major tasks and supporting work packages. 96/655/cD60300-3-3 © IEC:199X 60300-3-3 © CEI:199X The total LCC for the six life cycle phases, defined in IEC60300. Figure 1, of a product is LOC = Coo + Coo + Cu + Ci + Cow + Co where Ccp = — Cost, concept and definition phase Cpp = Cost, design and development phase Cm == _—_ Cost, manufacturing phase Ci = _—_ Cost, installation phase Com = Cost, operation and maintenance phase Cp = _Cost, disposal phase ‘See also Appendix A, Examples of LCC model development. The appropriate life cycle phases, or parts or combinations of these phases, should be selected to suit the special needs of each specific analysis. In a more general way LCC can also be divided into acquisition cost and ownership cost. See IEC 300-3-3, clause 4.2. Detailed expressions for costs for the different phases can be developed separately. The cost elements, factors etc. should have unique identities. In a situation were analyses should be performed while covering several phases, the identities of cost elements, factors etc. should be unique in the total LCC model. It is normally an advantage to maintain the product/work breakdown structure unvaried for the particular study. TEC 60300-3-3 “Figure 3 - Cost element concept” and clause 7.3 “LCC model development” give some overall guidance for the cost breakdown and the LCC model development. More detailed information is given below. Cost breakdown structure Product/work breakdown structure Selection of cost categories ‘Selection of cost etements Estimation of costs Presentation of results And when applicable Environmental aspects Uncertainties and risks Sensitivity analysis Treatment of costs ween 6.2 Cost Breakdown Structure The cost breakdown structure is a life cycle criented way of classifying costs. The cost breakdown structure links the different costs to meet the needs of the analysis. The individual cost is defined by its cost elements. See also !EC 60300-3-3, clause 6.2, and example in clause 7 below. 56/655/CD60300-3-3 © IE }99X -10- 60300-3-3 © CEI:199X 6.3 Cost categories Design, development, manufacturing, etc. include activities that contribute to the Life Cycle Cost. The costs associated with the activities may be grouped based on the type of resource used, e. labour materials fuev/energy overhead transportation administration travel storage environmental disposal waste landfill training documentation cost of fixed assets The above groupings define what is referred to as the cost categories. See also IEC 60300-3- 3, clause 6.2. Typical costs incurred in the different life cycle phases of a product/project are given in 1EC 60300-3-3, annex A. Examples of how various cost categories arise in the operation and maintenance phase are: a) Costs associated with operation * Non-recurring costs, e.9., costs for initial training of staff, documentation, initial spares, equipment, facilities and special tools * Recurring costs, .g., costs for labour, consumables, power, on-going training and upgrading b) Costs associated with preventive maintenance © Non-recurring costs, e.9., costs for test equipment and tools, initial spares and consumables, initial training of staff and initial documentation ‘+ Recurring costs, ¢.g., costs for !abour, travel, spares, consumables, on-going training and documentation ©) Costs associated with corrective maintenance ‘+ Non-recurting costs, e.g., costs for test equipment, tools, initial spares, initial training of staff, initial documentation and facilities + Recurring costs, e.9., costs for labour, spares and consumables, travel, on-going training and documentation ‘+ Cost due to loss of production, e.9., costs for compensation and loss of income 6.4 Productiwork breakdown structure ‘The product/work breakdown structure gives the breakdown of the product to lower indenture levels. See also IEC 60 300-3-3, Figure 3, and example in clause 7 below. An example of a product breakdown structure, and LCC summary for a railway vehicle is presented in Appendix B 56/655/CD60300-3-3 © IEC:199X = 60300-3-3 © CEI:199X 6.5 Selection of cost elements The cost element is the link between cost categories and the product/work breakdown structure. The selection of cost elements should be related to the complexity of the product as ‘well as to the cost categories of interest in accordance with the required cost breakdown structure. See also IEC 60300-3-3, clause 6.2 and 6.3, and example in clause 7 below. 6.6 Estimation of cost 6.6.1 General The costs related to each element should be estimated according to IEC 60300-3-3, clause 6.3. Life Cycle Cost analyses may be performed at different levels of detail. In IEC 60300-3-3, there are three basic methods that are commonly used to estimate the cost associated with a cost element. These methods are * engineering cost method + analogous cost method ‘* parametric cost method Examples of application of each method are given in clause 6.6.2 - 6.6.4 below. When carrying out an LCC analysis for a certain product, one or more of these methods, or ‘other methods, may be used as appropriate. in order to reduce different types of uncertainties involved in the LCC analyses, it should be Possible to perform sensitivity analyses, for example by introducing minimum and maximum values to the parameters of the LCC model, according to clause 6.7 below, into the cost estimation equations. 6.6.2 Engineering cost method ‘When using the engineering cost method, the costs for the particular cost elements are Girectly estimated by examining the product component by component, or part by part. Often standard established cost factors, for example, the current engineering and manufacturing estimates, are used to develop ‘the cost of each element and its relationship to other ‘elements. Older estimates available may be updated to the present time by the use of appropriate factors, as annual discounting and escalation factors. ‘The engineering cost method can be illustrated by the following example concerning the cost related to a recurring cost element: The labour cost for the manufacture of a power supply is to be estimated. The following information is given: Product Power supply Life cycle phase Manufecturing phase Cost category Labour cost ‘According to detailed assessment of manufacturing steps, provided by the manufacturing department, the time consumption for the production of one unit of the particular power supply is 38.8 person hours. Suppose the labour cost is UC 54.50/person hour. The total labour cost for the production of one unit is then 38.8 x 54.50 = UC 2114.60. 56/655/cD60300-3-3 © IEC:199X ~12- 60300-3-3 © CEI:199X 6.6.3 Analogous cost method In this method, cost estimations based on experience from a similar product or technology are used. Historical data updated to reflect cost escalation, effects of technology advances etc., are utilized. This technique may be one of the least complex and least time consuming methods. It is easily applied to components of the system for which there is some experience and actual data. The analogous cost method can be illustrated by the following example where an estimate of the cost for parts and material for a power supply, using experience from an older power unit, is used. The following information is given: Product Power supply Lite cycle phase Manutacturing phase Cost category Parts and materials For a somewhat less complex power supply produced 4 years ago the cost for parts and materials was CU 220. Cost escalation over 4 years is taken to be 5%. ‘The cost for additional parts will be about UC 50. Therefore, cost for parts and materials for the new power supply.unit is estimated to b 220 + 0.05 x 220 + 50 = UC 281 6.6.4 Parametric cost method The parametric cost method for LCC uses parameters and variables to develop cost estimating relationships. The method might be differently used in other areas. ‘The relationships are usually in the form of equations where, for example, person hours are converted into costs. An example af the parametric cost method used for a calculation of active corrective maintenance cost for a sub system P14, is given in figure 3 below. Product Breakdown ‘Structure (P) Cost Element (CE): R7 ; P14 : x ce | [ce | [ce |[ ce | [ce] Cost Categories (F +R2- - AS - AT --RIG- RI2-- An Figure 3. Example of Cost Elements used in the parametric cost method 56/655/CD60300-3-3 © IEC:199X -13- 60300-3-3 © CEI:199X In figure 3 Re Investment in test equipment, workshop (non-recurring) R5 = _ Investments in spares, workshop (non-recurring) R7 = _Labour, site (recurring) R10 = _Labour, workshop (recurring) R12 = __ Spares consumption, workshop (recurring) and P14. = — Sub system P14. Cost of active corrective maintenance for sub system P14 for a 10 years period = = Cost(R2;P14) + Cost(RS;P14) + (Cost(R7;P14) + Cost(R10;P14) + Cost(R12;P14)) x 10 {not taking into account effects of inflation etc.) {Active corrective maintenance is defined in IEC 50, see definition 191 08-07 and figure 191- 10). Where, for example, the cost related to element (R7;P14) is calculated as follows Cost(R7;P 1.4) = Labour cost, active corrective maintenance at site for sub system P14 Cost(R7;P14) = QP14 x ZP14 x CL xnx MAT Cost/year where QP14 = — Quantity or number of items, in this example QP14 = 1 2P14 = Expected number of failures/year for sub system P14 CL = _ Labour costnour N = _ Number of persons required to carry out the repair MRT = — Mean repair time in hours/action Assume: QP14 = * one item /system zP14 = 0.3 failures/year CL = UC 50mour N= one person MRT = 2.4hours/action Cost(R7;P14) =1x0.3x50x1x2.4= UC 36/year To calculate the labour cost for 10 years, the result should be multiplied by 10. (Not taking into account effects of inflation, ete.) If different factors, for instance inflation or discounting, have to be taken into account, this could be included in the estimation of cost related to each element or at a higher cost element evel in the LCC model. Cosi(R10;P14), etc., are calculated in a similar way. 96/655/CD60300-3-3 © 1EC:199X -14- 60300-3-3 © CEI:199X 6.7 Sensitivity analysis In order to consider uncertainties involved in the LCC analysis, sensitivity analyses should be performed. Cost drivers, uncertain data, etc., may be varied to establish their impact on the total LCC or part of it. To facilitate this, special factors may be included in the formulas. This could be accomplished either in the formulas/equations for the individual cost elements or at a higher level. To facilitate the sensitivity analysis, it is important that the LCC model is developed in such a manner that; when a common parameter, for instance person hour cost, is varied, this is ‘automatically reflected wherever this parameter is used. It may be desirable to use minimum or maximum values of certain parameters or even a distribution. The LCC model in that case should be developed to meet these needs. ft should be noted that the results of LCC calculations generally do not match with the actual/observed cost. This is because there are many influencing random factors, such as ‘environmental conditions, human errors during operation etc., which cannot be accurately modelled in the calculations. The calculated LCC value sometimes is interpreted as the expected (mean) value. Such an interpretation could be misleading. It is therefore recommended that the LCC model, in addition to the calculation of costs, provide for the estimation of the probability of realising the calculated LCC value. For example, this can be done in the equation in clause 6.6.4 by replacing ZP14 (expected number of failures in a year) by such a value of the number of failures per year that the probability of exceeding this number is reasonably low, say 0.05. The distribution of possible cost values can be calculated by replacing average values of the variables by the appropriate distributions of values using simulation (Monte Carlo) ot by calculating the variance of the LCC based on the variance of the individual cost elements. To facilitate sensitivity analyses, a special zero-setting constant may be used for all or some of the equations. By using this constant, one or more cost elements can easily be set to zero without changirig any other parameter in the equations concerned. 6.8 LCC and environmental aspects 6.8.1 General The society is becoming increasingly concerned about the environmental impact of products and services. All decisions made about a product's design, manufacture, use etc, including the environmental impact, may affect the price and ownership cost. Lite cycle costing is the process of economic analysis to assess the total cost of acquisition and ownership of a product. If the costs of the actions that have to be taken to fulfil the environmenial regulations are included in the LCC stugies. this will provide important inputs in the decision making process in the product design, development and use. Suppliers and users of products and services should to pay attention to environmental consequences of production, operation, maintenance, logistics activities etc. The cost advantages of cheap but harmtul activities must be carefully estimated. Environmental issues as well as traditional factors such as cost and time have to be considered. Therefore, methods have to be used to rank environmental consequences of different activities. These methods can provide the bases for environmental planning and integrating environmental issues into the decision making, 56/655/CD60300-3-3 © IEC:199X -15- 60300-3-3 © CEI:199X While LCC analysis provides a picture of the economical aspects, a comprehensive instrument to study or judge the environmental impact of a product is Life Cycle Assessment (LCA). Life Cycle Assessment is explained in ISO 14040, Life Cycle Assessment. 6.8.2 Co-ordination of LCA and LCC LCA provides a comprehensive, multidisciplinary picture of the environmental impacts of a product and how changes to the product can alter these effects. Evaluations are useful for comparison of burdens (e.9.. costs) associated with different ‘options as well as trade-offs with other factors such as performance, safety and economics. ‘The LCC analysis provides both a detailed and overall picture of the economical aspects. It is possible to choose the most ecoriomical design solution by evaluation of alternatives and by Performing trade-off studies. Various operating and maintenance strategies to consider the environmental impact could be evaluated. ‘The life cycle cost analysis could also be effectively applied to evaluate the costs associated with a specitic activity, for example, different disposal concepts. LCA and LCC analysis should be co-ordinated. LCA should be performed as part of or integrated with life cycle costing analysis. The LCC model should be used to facilitate environmental cost analyses. Factors influencing the environmental impact should be varied to perform sensitivity analyses to establish their impact on the total LCC. For example, what will the effect be on the total LCC if a cabinet of aluminium is used instead ill the effect be on the acquisition cost and the cost of ownership ‘When designing the LCC model, the environmental cost should be included in cost of acquisition and cost of ownership. This may be accomplished either by including the costs in Suitable cost elements or at higher levels in the LCC model. It should be advantageous to calculate the total cost for environmental impact activities, cost for energy consumption, etc., as separate cost categories. Costs for the LCA and for other environmentai analyses and activities that have to be performed should also be included. 6.9 LCC and uncertainties and risks Any decisions made about a product's design and manufacture can affect its __ performance, safety, reliability, maintainability, maintenance support and ultimately its acquisition and ‘ownership cost. There are many factors beyond the designers control that may introduce cost uncertainties with attendant economical consequences ‘These may include uncertainties related to: a) Commercial and legal relationship between the owner and other organisations b) Economic circumstances of the organisation, country, e.9., exchange rates ©) Political circumstances including legislative changes and factors 4) Technology and technical issues such as safety and environmental impact 56/655/CD60300-3-3 © IEC:199X -16- 60300-3-3 © CEI:199X e) Natural events, human behaviour etc. 1) Unavailability due to system failures. Systematic methods should be used to identify and evaluate uncertainties and risks associated with any product, activity, function or process. This should be done in a way that enable the organisation to minimise losses (or maximize gains) and to quantify the probable consequences. As part of this, risk analyses should be carried out. One objective of uncertainty and risk analyses is to identity presumptive risks, to separate the minor acceptable risks from the major risks and to estimate the consequences of each ri ‘The consequences may be expressed in terms of technical and human criteria but also costs. To got a better overview of the total costs involved, uncertainty afd risk analyses may be performed as part of LCC analyses. For example, how much will it cost the customer in loss of receipts, fines, etc. loss of production, in if the actual number of failures is twice as high as the specified value. ‘The uncertainty and risk cost elements should be included in cost of acquisition and cost of ‘ownership. This may be accomplished either by including the costs in suitable cost elements or at a higher level in the LCC model. 7 Example of a LCC analysis 7.1 General The following example describes the LCC procedure and some methods for estimation of life cycle costs. The example refers to the Product “Data Communication Network (DCN)". The Product Breakdown Structure, shown in Clause 7.3, lists the different products included in the DCN. ‘The purpose of the analysis is to find major cost drivers related to the Operation and Maintenance phase as well as loss of revenues due to outages. Costs for infrastructure and some other costs related to Operation and Maintenance are not included. The analysis is based on “constant prices" and 15 years operation of the product. ‘The following costs, related to the Operation and Maintenance phase, are included in the analysis: 21 ts for 1 eration and Maintenance = Costs, Investments (Cl) = Costs, Operation (CO) - Costs, Maintenance (CM) ‘+ Total Costs, Investments for Maintenance(CIM} - Costs, Facilities for Maintenance at Site (CIMS) = Costs. Facilities for Maintenance at Workshop (CIMW) + Costs, Replaceable Units (CIMR) = Costs tor Annual(Y) Operation (CY = Costs, Leasing of the Data Transport Network (CYOL) ~ Costs, Software upgrading (CYOS) - Costs, Unavailability associated costs (loss of revenue due to accumulated downtime of the Data Communication Network) (CYOU) 56/655/CD60300-3-3 © IEC:199X -17- 60300-3-3 © CEI:199X . for Annual(Y) YM) - Costs, Preventive Maintenance (CYMP), Person hours and Spares = Costs, Corrective Maintenance (CYMC), oe = Costs, Corrective Maintenance at Site (CYMCS), Sa = Costs, Corrective Maintenance at Workshop (CYMCW), -*- = Costs, Spares (CYMS). Total cost for all Spares The Cost Breakdown Structure (CBS) for this example is shown in Figure 4. “The analysis is performed in the following steps: ‘* Definition of an appropriate Cost Breakdown Structure ‘* Defining a detailed Product Breakdown Structure including a compilation of technical and cost data for the product Selection of Cost categories * Establish the correspondence between the Product Breakdown Structure and Cost categories by means of Cost Elements (CE) Establish preconditions and assumptions for the analysis '* Perform the cost calculations * Presentation of costs in accordance with the Cost Breakdown Structure 7.2 Cost Breakdown Structure (CBS) As noted earlier in Clause 6.2, the Cost Breakdown Structure (CBS) is a life-cycle oriented way of classifying costs. The CBS links the different costs to meet the needs of the analysis. ‘The individual cost is defined by its Cost Element. See clause 7.4. ‘The CBS below describes the reiation between costs applicable to this example. 86/655/CD60300-3-3 © IEC:199X -18- 60300-3-3 © CEI:199X Total LCC Operation and Maintenance phase Total Cost for 15 years Operation and Maintenance com cms Total Costs, investments for Maintenance cumnw cIMR cYoL Total Cost 4 Costs for Operation ‘Annual (¥) cYos ea Operation cyo cyou Total Cost Costs for Maintenance Annual (¥) Maintenance cM cym 1 =15 (number of years in operation) Figure 4. Cost Breakdown Structure used for this example 7.3 Product Breakdown Structure To pertorm the required calculations in accordance with the Cost Breakdown Structure above a detailed Product Breakdown Structure must be worked out. Tables 1-5 below present a Product Breakdown Structure, in 3 identure levels, including some dependability and cost data for the product. The product “P" is 2 Data Communication Network (DCN) consisting of N_ identical Communication Systems (CS) and a Data Transport Network (DTN). The Data Transport ‘Network contains all data links within the DCN. Table 1 - 1st identure level: Data Communication Network Identiti Required Availability Gy: Level 1] item name cation performance Communication Syster : P2 Data Transport Networ] DTN 99.99 % per link 1 56/655/CD60300-3-3 © IEC:199X -19- 60300-3-3 © CEI:199X Ts le 2 - 2nd Identure level: Communication System ye nee Level 2 (failures/10" UC) Power Supply System | PSS See table3 | See table 3 Main Processor Seetable4 | See table 4 Display Console 5 per item 900 Input/Output Unit 4 per item 300 Fan System Seetable5 | See table 5 ‘Note: (UC).~In tis example 1 UC Ts approximately equal to 1-5 US Dollar. ‘Note: (RU). - Replaceable Unit is to be repaired at the “Workshop level” and replaced on the “Site lever”. The costs in the Tables refer to the purchase of Replaceable Units and Spares for the O&M phase. The Display Console and the Input/Output Unit are “Replaceable Units” and their further breakdown is not necessary. The breakdown of the other items is given in Tables 3 - 5. Table 3 - 3rd Identure level: Power Supply System Denomi- | Failure intensity | Cost per item| Level3| item name Nation | (z) (failures/10° (uc) Power Supply Unit 18 per item 1.1.2 | Power Control Unit 4 per item negligible Central Processor 15 per item Program Store 18 per item Data Store 22 per item Data Bus System 3 per item 56/655/CD60300-3-3 © IEC:199X -20- 60300-3-3 © CEI:199x Table 5 - 3rd identure level: Fan System Denomi-| Failure intensity Level 3] Item name Nation | (2) (failures/10° h) Fan FAN (S)] negligible Alarm Unit AU (RU} 2 per item Note: (S).— Spares. ‘Note: The Battery and the Fan are subject to preventive maintenance to prevent wear out failures. 7.4 Cost categories The costs, associated with the Cost Breakdown Structure, are grouped to Cost categories. See Table 6. Investment costs are the total costs for the period under study, in this example 15 years. The other costs are annual costs. Table 6 - Cost categories, Investment in Facilities for maintenance at workshq Investment in Replaceable Units Cost of Spares for maintenance at site Cost of Spares for maintenance at workshop Cost of Preventive maintenance Cost of Corrective maintenance at site Cost of Corrective maintenance at workshop Cost of Software upgrading Cost of Leasing of Data Transport Network Cost due to Unavailability 7.5 Selection of Cost Elements ‘The Cost Element is the link between the Productwork breakdown structure and the Cost categories. The calculation of costs in clause 7.6 refers to the Cost Elements defined in Figure 5. The Cost Elements are the reference for all calculations, as well as for the aggregation of costs, in accordance with Cost Breakdown Structure. 56/655/CD60300-3-3 © IEC:199X -21- 60300-3-3 © CEI:199X Productwork break-down structure See Table 1-5 pis Pisa Pis2 Pie PIs p12 Pi24 122 P1238 P1248 Pit Piatt Pr P2 "Cost categories Ri R2 RS R4 RS AS AT AB AY AIO AI1 See Tablee Figure 5 ~ Distribution of Cost Elements 7.6 Calculation of costs 7.6.1 Preconditions and assumptions for the calculation The calculation in this example is based on the following estimated performance, costs and other conditions: ‘+ Mean Repair Time (MAT) = 0.5h «Mean Technica! Deiay (MTD) = 0.25 h + Mean Administrative Delay (MAD) = 4h ‘+ Mean Logistic Delay (MLD) = To be calculated * Cost per Man-hour (CMH) = UC 15 + Cost for Network Downtime (CND) = UC 55 per minute years + Useful life of a fan = 8 years + Useful life of a battery = = Cost for Software upgradin = UC 3.000 per Communication System + Interval for Software upgrading-= 1.5 years 56/655/CD60300-3-3 © IEC:199X -22- 60300-3-3 © CEI:199X + Acentral maintenance organisation is used for maintenance at sites + All Replaceable Units are repaired at a central workshop ‘+ Tum-Around-Time (TAT) for Replaceable Units = 720 hours (=30 days) ‘+ Required Shortage Probability (SP) for Replaceable Units = 1% ‘© Cost for a Portable Test equipment for Site maintenance (CPTS) = UC 2500 = Cost for leasing of the Data Transport Network = UC 150 000 per year Failure intensities (z) and purchase costs for Replaceable Units and Spares are Tables 1-5. The calculations below refer to the Cost Elements shown in Figure 5. 7.6.2 Investments (CIM) 7.6.2.1 Costs, Facilities for Maintenance at Site (CIMS) Cost Elements: (R1 ; P1.1 - P1.5) Facility for maintenance at site consists of a Portable test equipment. This equipment is used in connection with all types of corrective maintenance. The demand rate of the equipment depends on the number of corrective maintenance actions. Using data in Tables 2 ~ 5, the total Number of Corrective Maintenance Actions (NCMA) pet year can be calculated as: NOMA = 30 x ( 5x2 + 4x1 + 18x2 + 4x1 +15x2 +18x2 + 2x4 + 3x1 + 2x1) x 8760 10%= 56 actions per year. The mean time between corrective maintenance actions is 156 h. The average utilization time of the Portable test equipment per corrective maintenance action is approximately 2 x Mean Time To Restoration (MTTR). Using data from clause 7.6.1 and 7.6.2.3 (MLD), the MTTR can be calculated to MTTE =MRT +MTD + MAD + MLD = 6 hours CPTS = UC 2 500 (Cost for a Portable test equipment) By using two Portable test equipment an acceptable avaitability of the equipment can be achieved. Therefore CIMS = 2.x CPTS = UC 5 000 7.6.2.2 Costs, Facilities for Maintenance at Workshop (CIMW) Cost Elements: (R2 ; P11 - P1.5) The estimated cost of test equipment for fault localisation and function check-out of replaceable units is = UC 30 000. The value is based on experiences from similar products. CIMW = UC 30 000 56/655/CD60300-3-3 © IEC:199X -23- 60300-3-3 © CEI:199X 7.6.2.3 Costs, Replaceable Units (CIMR) Cost Elements: (R3 ; P1.1.1 - P1.5.2) The required Number of Replaceable Units (NRU) is calculated by means of the following Poisson distribution: ru ,-N x 2 xTAT 1-SP= 5 n=0 The Poisson distribution relates failure intensity (N x z) to the required number of spares (NRU) at some level of protection (1 — SP) given a specified Turn-Around-Time (TAT) for the tepair of Replaceable Units (RU). X(N x zx TAT)" 7 ‘The Mean Waiting Time (MWT) for a Replaceable Unit (RU) at store can be calculated as: MWTay = SP x TAT /(NRUay +1) hours NRUpy = number of spares for a specific replaceable unit. Using above equations, the required number of the different Replaceable Units (NRU) including investments and Mean Waiting Times (MWT) are: ‘Table 7 - Investments in Replaceable Units Purchase cost] Total investment | Identification | MWT periton | UC) | per RU type (UCI Hours CIMA(PSU) CIMR(PCU) CIMR(CP) cIMA(PS) CIMR(DS) CIMR(DBS) CIMA(DC) CIMR(IOU) TOTAL Po ar ae ‘Note: NRU is calculated using the Poisson Gletibution. CIMR = UC 23 630 ‘The Mean Logistic Delay (MLO) is calculated as: RUS 2D (N x2) py x MWIpy RUL MLD= RD, ; (Nxz RUI RU MLD = 1.6 hours (to be used for the calculations of Availability performance) MLD is the weighted average of the Mean Waiting Times. 56/655/CD60300-3-3 © IEC:199X ~24- 60300-3-3 © CEI:199X “he total cost for investments is: CIM = 5 000 + 30 000 + 23 630 = UC 58 630 7.6.3 Costs for Annual Operation (CYO) 7.6.3.1 Costs, Leasing of the data Transport Network (CYOL) Cost Element: (R10 ; P2) CYOL = UC 150 000 7.6.3.2 Costs, Software upgrading (CYOS) Cost Element: (R9 ; P1.2.2) ‘The interval for upgrading of software is 1.5 years. The average yearly cost, totally for the 30 systems, based on total 15 years operation of the product, is: CYOS = 30 x 3000 x 10/15 = UC 60 000 7.6.3.3 Costs, Unavailability (CYOU) Cost Element: (R11; P, P1, P2) Cost of Unavailability is calculated as: CYOU = 30 x (MADTCS + MADTOTN) x CND where MADTCS = Mean Accumulated Down Time of the Communication System (minutes/year). MADTDTN = Mean Accumulated Down Time of the Data Transport Network (minutes/year). ND = Cost for Network Down Time, UC / minute. and MADTCS = 8760 x 60x (1 - ACS) MADTDTN = 8760.x 60x (1 ~ADTN) where ACS = Availability performance of the Communication System ADTN = Availability periormance of the Data Transport Network ACS = — APSS x AMP x ADC2 x AIOU x AFS. ADTN 99.99 % where APSS = Availability performance of the Power Supply System AMP. Availability performance of the Main Processor ADC Availability performance of the Display Console Alou Availability pertormance of the Input/Output Unit AFS Availability pertormance of the Fan System 56/655/CD60300-3-3 © IEC:199X -25 60300-3-3 © CEI:199X Availability performances is calculated below using the formula: Ash l(us2) Where be 1/MTTR, MTTR = MRT + MTD + MAD + MLD and z= failure intensity MTTR = 0.50 + 0.25 + 4.00 + 1.60 = 6.35 Power Supply System (PSS) Due to redundant Power Supply Units and that 75% of the failures in Power Control Unit affect the Power Supply System the System failure intensity of the Power Supply System can be estimated to 3 failures/106 h. APSS= 99.998 % in P) The main part of the MP is duplicated. However, due to failures in the Data Bus System (DBS) ‘and downtimes related to software restoration processes, the availability performance is estimated to: AMP = 99.995 % Display Console (DC) ADC = W/ (n+ 5x 10-6) ADC = 99.9968 % Input/Output Unit (101 AIOU = 1 /(1+ 4x 10-6) AIOU = 99.9975 % Fan System (FS) Due to redundancy, the availability performance of the Fan System is assumed to be 100% Therefore ACS = 99.984 % and MADTCS = 84.1 minutes per year MADTDIN = 52.6 minutes per year The Unavailability Cost, CYOU = 30 x (84.1 + 52.6) x 85 = UC 225 555 CYOU = UC 225 555 Gost for Annual Operation CYO = 150 000 + 60 000 + 225 555 = UC 435 555 56/655/CD60300-3-3 © IEC:199x -26- 60300-3-3 © CEI:199x 7.6.4 Costs for Annual Maintenance (CYM) 7.6.4.1. Costs, Preventive Maintenance (CYMP) Cost Elements: (R6 ; P1. P1.5.1) Gost for change of batteri CYMPBATT = Cost of batteries (CBATT) + Cost of Maintenance (MMH x CMH) ‘The required preventive maintenance Person Hours (MMH) per preventive action is assumed to be = 10 h (2 persons x 5 h) ‘The interval for change of batteries is 4 years. The average yearly cost, for all Communication ‘Systems, based on total 15 years operation is: CYMPBATT = 30 x 3/15 x ( (8 x 100) + (10 x 15)) Note: 3 battery changes occur over 15 years CYMPBATT = 4.800 + 900 = UC 5 700 Cost for change of fans: CYMPFAN = Cost of fans (CFAN) + Cost of Maintenance (MMH x CMH) ‘The required Maintenance person hours (MMH) per preventive action is assumed to be = 20h (2 persons x 10 h) The interval for change of fans is 9 years. The average yearly cost, for all Communi Systems, based on total 15 years operation is: CYMPFAN = 30 x 1/15 x ( (4 x 40) + (20 x 15) ) ‘Note: 1 fan replacement occurs in a period of 15 years. CYMPFAN = 320 + 600= UC 920 ‘The Annual cost for preventive maintenance is: CYMP = 5 700 + 920 = UC 6 620 7.6.4.2 Costs, Corrective Maintenance at site (CYMCS) Cost Elements: (R7 ; 4.4 = P15) (CYMCS = NCMA x MMH x CMH + NCMA x Average cost of spares per maintenance action NCMA =The total Number of Corrective Maintenance Actions per year = 86 (See clause 76.2.1) Corrective MMH is assumed to be = MAT + MTD + 2 x MAD + 1 h = 9.75 h (1 persons required) Average cost of spares per corrective action is assumed to be = UC 14 CMH = Cost per Person hour = UC 15 56/655/CD60300-3-3 © IEC:199X -27- 60300-3-3 © CEI:199X CYMCS = 56 x 9.75 x 15+ 56x 14= UC 8974 7.6.4.3 Costs, Corrective Maintenance at workshop (CYMCW) Cost Elements: (R8 ; P1.1.2- P1.5.2) CYMCW = NCMA x MMH x CMH + NCMA x Average cost of spares per repair ‘The average MMH per repair is assumed to be = 3h CMH = Cost per Person hour = UC 15 ‘The average cost for spares, per repair, is assumed to be = UC 18 CYMCW = 56 x 3x 15+56x 18=UC 3528 Note: It is assumed that all S6 corrective actions per year require maintenance at both site and workshop. 7.6.4.4 Costs, Corrective Maintenance (CYMC) YMC = YMCS + CYMCW = 8 974 + 3 528 = UC 12 502 CYMC = UC 12502 7.6.4.5 Costs, Spares (CYMS) CYMS = Cost of Batteries + Cost of Fans + Cost of Spares at site and workshop CYMS = 4 800 + 320+ 56x (14+ 18) =UC 6912 CYMS = UC 6912 7.8.4.6 Costs for Annual Maintenance (CYM) CYM = CYMP + CYMC =6 620 + 12 502 = UC 19 122 CYM=UC 19 122 7.6.4.7 Total Costs for 15 years Operation and Maintenance (COM) of the Data Communication Network: investments: CIM=UC 58 630 Cost for Operation: CO = 15 x 435 555 = UC 6 533 325 Cost for Maintenance: CM = 15 x 19 122 = UC 286 830 Totat Cost: COM = CIM + CO + CM=UC 6 878 785 56/655/CD60300-3-3 © IEC:199X ~28- 60300-3-3 © CEI:199X 7.6.5 Presentation of costs related to the Cost Breakdown Structure 7.6.5.1 Total Costs, Investments for Maintenance (CIM) Test equipment Uc at workshop Replaceable Units 15 000- 10 000- Test equip- ment at site 5 000- cims 5000 7.6.5.2. Costs for Annual Operation (CYO) uc 260. 000- Unavallabitity cyou 200 000- eae ae) Leasing of Data Transp. Network 150 000- cyoL, 150 000 10¢ 000- om Upgrading 50 000- 56/655/CD60300-3-3 © IEC:199X -29- 60300-3-3 © CEI:199X 7.6.5.3 Costs for Annual Maintenance (CYM) uc Corrective Maintenance 12. 000- Corr.Maint. at Site 8 000- Corr.Maint. at Worksh, 4000- 7.6.5.4 Total costs for 15 years operation Uc x 1000 7:000- com 6 000- 6878 co 6533 5000+ 4000- 3.000- 2.000- CM = 287 1000- 56/655/CD60300-3-3 © IEC:199X -30- 60300-3-3 © CEI:199X 8 LCC calculations and Economic factors 8.1 General The price the customer ultimately pays depends on how economic conditions vary during the course of the life cycle. In order to forecast affordability against a given budget, the effects of the variations in rates of inflation and interest rares, the effects of exchange rate fluctuations, and the real value of money should be taken into account in LCC calculations to the extent feasible. Clauses 6.4.2 to 6.4.5 in IEC 60300-3-3 introduce the effects of discounting, escalating, opportunity costs, inflation and taxation. In this clause, these and other factors and also methods that may be used to take them into account, are discussed in more detail. 8.2 Methods for expressing and converting costs 8.2.1 Real cost In gathering information concerning the processes involved in developing a product, all ‘economic factors may not be relevant. To ensure accuracy in process considerations, current costs are generally used to enable process effects only to influence the total life cost. Using real costs allows current known cost information to be used in the analysis. In order to do this, the base date has to be set to a recent past date or a near future date. This is a simpler concept. A value in real cost is the amount in Units of Currency,.UC. to be paid if the reason for the cost occurred at the base date and had to be paid for at the base date. A recent date and real costs are usually the ones used in life cycle costing when statirig the value of cost elements. This is because people are familiar with the current cost, which is the cost just paid for the same or a similar item, the cost involved in a current contract, or the cost ‘environment in which everybody is currently working and thinking. Unless inflation is unusually high, it is sufficient to talk about the base date in terms of the year to which the costs refer. The need to refer to a year when using real costs is because of ‘general price inflation. Future prices will not necessarily change at the same rate for all items. The technological change and efficiency improvements will make some prices change at a different rate than the tate of general price inflation. Forecast changes which are more or less than general price inflation should be incorporated into real cost estimates. It may be necessary to use different adjustments for different products or for different cost elements. For example, the cost of buying a personal computer capable of a specified task has been reducing for many years. That is, there has been negative inflation in the cost of PCs and this could continue for many more years. In comparison, the cost of pollutants or environmentally unfriendly chemicals over the coming years is likely to increase at a rate faster than the general inflation rate. One use of life cycle costing may be to prepare future year budgets. Real cost is generally not appropriate for preparing financial budgets. What is required is an estimate of the actual UC. amounts that will flow in future years. This is expressed as nominal cost and is related to real cost by expected general price inflation. See examples below. Example: If 80L of a certain lubricant was recently purchased for $100, the cost is $100 in real cost, if the base date is now. 56/655/CD60300-3-3 © IEC:199X -31- 60300-3-3 © CEI:199X If the purchase was in 1997, the 80L had a cost of $100 in 1997 values, it has a real cost of $100 with 1997 as the base date. Suppose that a review of previous lubricant purchase reveals that in 1995, an alternative lubricant was bought, with a cost of $90 at the time. How does this compare with the $100 purchase in 1997? If we know that the price of the alternative lubricant has increased by 6% per annum, then if we were to buy the alternative in 1997, we would have to pay more than ‘$90. The actual amount would be 90 x 1.06 x 1.06 = 101.12 in 1997 values. The $90 in 1995 could be said to have a real cost of $101.12 using the base date of 1997. 8.2.2 Nominal cost Nominal cost is the actual cost of a product over its lite, expressed as the actual UC amounts that will be paid at the specified times in product's life. This method is used for financial information about a product to ensure ‘actual’ UC are available to fund the various costs of ‘the product over its life. Nominal cost uses projected economic, technological and efficiency factors to budget for all of the costs to be incurred over the life of a product. It can be calculated by increasing the real cost by the expected general price inflation between the base date and the time when the costs will occur. There is a direct relationship between the real cost and the nominal cost; they are linked by the general price inflation that is expected to occur between the dates in question. The item being purchased is not changed in any way by how the cost is expressed. Different discount rates apply depending on whether nominal costs or real costs are being discounted. With nominal cost, the discount rate should include an inflation component; this is, ‘known as a ‘nominal’ discount rate. If real costs are used, the discount rate should not include an inflation component; this is known as a ‘real’ discount rate. Example: Continuing the previos example, say in 1999, there is a need to buy lubricant worth $100 in 1997 dollar values. The best advice available is that between 1997 and 1999, the price of lubricants will increase by 4% in the first year and 3% in the second. The actua! amount that will be paid for lubricant in 1999 is estimated tol be 100 x 1.04 x 1.03 = 107.12 and this would ‘be expressed as the nominal cost occurring in 1999. It could also be stated that $107.12 is ‘the cost of the lubricant in 1999 dollar values. In this example, 80 L of lubricant is being bought in 1999. For one purpose, it may be expressed as $100 cost in 1997 dollar values occurring in 1999, and for another purpose it may be expressed as a nominal cost of $107.12 occurring in 1999, implying that the $107.12 Js in 1999 dollar values. When comparing the expenditure of $100 now on lubricant, with the expenditure of $107.12 now on an alternative, the cheapest is the best, all other things being equal. However, if a ‘comparison needs to be made between $100 now in real cost an $110 in one year's time in real cost or even in nominal cost, the best choice depends on other factors. Another cost concept is needed in order to decide between the alternatives. This concept is called the concept of discounted cost. 56/655/cD60300-3-3 © IEC:199X 60300-3-3 © CEI:199X 8.2.3 Time value of money The timing of the future costs must be considered in the LCC analysis. It is normally not possible to merely add the future costs to initial costs. It can not be assumed that capital has a time value of zero percent or that capital is free. Life cycle cost analyses should be performed in terms of compatible Units of Currency. Money has a time value. For example, if $100 is invested today at a 10% annual rate, it will be worth $ 100 x 1.1 = $ 110 a year from now. If the investment continues for a second year it will be worth $100 x 1.12 = $ 121 (or $110 x 1.1). This process is called compounding. An investment of $100 compounded for 4 years at 10% will be worth $100 x 1.14 = In general, the single compound amount, CAs, could be calculated as CAg= (14 NY KP where r= interest rate y= number of years P = present amount The present vaiue of an amount of money due in the future is calculated by discounting. In the case of the above, one may ask how much one will have to invest today in order to have $146.41 in 4 years if 10% can be earned on a saving account. ‘The answer is that one will have to invest $146.41 / 1.14 = $100. The reciprocal of compounding is discounting. The principle behind discounting is that future values are not worth as much as numerical equivalent sums of money held today because money held today, if invested in a bank, would earn interest. Any future value would be larger in numerical terms than it is today. Conversely, future sums can be considered to have been derived from smalier sums upon which interest can be paid. This cost today is, therefore, considered to be numerically smaller than the corresponding cost occurring in the future. This can be presented by a simple formula that produces discounts for a series of annual cash flows, which occur over the life cycle of a product. The net present value, NPY, is simply the total of discounted benefits with the costs having been deducted. The discounting process is important in the life cycle cost analysis because it facilitates the translation of future values to present values. If the total cost of owning a product is its initial cost and all subsequent costs, the latter must first be discounted to present valve before they can be combined with the initial cost to obtain the life cycle cost. Discounted cost is calculated by taking costs which occur in future years and reducing them by a discount rate. See also clause 8.2. Ditterent discount rates apply to different organizations and to different individuals. Individuals and companies typically prefer to have income as early as possible and to defer money outgoing for as long as possible. This tendency is described by the term “time preference’ and discounting takes account of time preference. Applying discount rates to costs reflects the tact that people prefer to have income now rather then later. 56/655/CD60300-3-3 © IEC:199X -33- 60300-3-3 © CEI:199X ‘The discount rate is the interest rate that would make it just worthwhile for the decision maker to spend money in a year's time rather than now. It is also the rate by which future income would need to be discounted each year so that the decision maker would prefer to have it now, as current income. For companies, the discount rate is usually related to the cost of loans and, where applicable the returns required by shareholders. Company accountants generally compute the required rate of return for new investments and this discount rate. In this form, it usually includes an infiation component. For an individual, the discount rate will depend on his/her own personal time preference. Example: If a $110 nominal cost will occur in one year's time and the discount rate is 9% per annum, the calculation for today's worth is.110/1.09 = 100.92. The $110 nominal cost in year's time equivalent to a discounted cost of $100.92 using a 9% discount rat 8.2.4 Discounted owcash fl ( DCF ) ‘The discounting of cash flows is a fundamental principle that is applied to all modern methods of investment appraisal. The basic principal of discounting cash flows is outlined below. A sum of money available today will, by investing it at a fixed interest rate, grow to a larger sum, expressed in money terms, in future years. For example, 100 CU invested today at an interest rate of 10% per annum will become 110 CU after one year, 121 CU after two years, 133.1 CU after three years, and so on. The interest earned in each successive period (in this, case, each year) is added to the value that investment had at the start of that period, to provide the basis for calculating the interest for the next period. This method is known as ‘compounding. By the same principle, a sum of money that is to be paid at some time in the future could be realised by investing a smaller sum of money today so that it earns interest during the intervening period. Thus, if a payment of X is to be made n years in the future, a smaller sum, Y, may be invested today to earn interest at a rate r and yield the sum X at the future Point in time when payment is due. ‘The quantity Y is known as the ‘present value’ of the sum X, and X by the discount rate r over the n year period. is obtained by discounting Because of this time value of money, it is not possible to directly compare sums of money that are to be paid or received at different times in the future. To make a comparison possible, it is necessary to convert them to their equivalents at a common point in time, or base date, by discounting, which is the inverse of compounding. In assessing two different investment proposals, each involving a number of cash flows at different points in the future, the proposals can only be compared after all cash flows have been discounted to a common base date, at a common discount rate. The chosen discount rate niust be appropriate to the circumstances, and agreed to by all the parties involved. The common base date does not have to be the present time, and is likely to be some time in the future, such as the start date for the proposed project. Gash Flow’ is also used to denote a specitic methed of invesiment appraisal. To avoid contusion, the alternative name ‘Internal Rate of Return’ for this investment aporaisal procedure te preferred. 86/655/CD60300-3-3 © IEC:199x -34- 60300-3-3 © CEI:199x 8.2.5 Conversion of costs To convert real costs to nominal costs, multiply real costs by an inflation factor : (i+ay” where a= the expected increase in general prices per annum ‘tie number of years between the base date and the occurrence of the cost. To convert a real cost that will occur in the future to discounted cost, multiply by: 1 (+n)? where f= the real discount rate per annum y = the number of years according to above To convert real cost into nominal discounted cost, multiply by: (i+a)” (14+ tn)” ‘a = is the expected increase in general prices per annum y = the number of years according to above fa = nominal discount rate per annum ‘To convert a nominal cost to discounted cost, multiply by : 1 (1+ ta)” where fq = the nominal discount rate per annum y = the number of years according to above or 1 (tta)’x(ten)” where a = the expected increase in general prices per annum y = the number of years according to above r, = the real discount rate per annum 56/655/CD60300-3-3 © IEC:199X -35- 60300-3-3 © CEI:199X 9 Accounting methods 9.1 General ‘The evaluation of the prospective costs and revenues generated by an investment in a capi Project over its expected life is called investment appraisal. Such appraisal includes the assessment of the risks of, and the sensitivity of the project's viability to, forecasting errors. ‘The appraisal enables a judgement to be made whether to commit resources to the project. 9.2. Present value ‘The present value is the amount of money which must be invested now for n years at an interest rate of r% to earn a given future sum of money at the time it will be due. Example: UCI0 000 invested now earning a return of 10% per annum is the equivalent in value of UC14641 after 4 years. UC10 000 is the “Present value” of UC14 641 at year 4 at an interest rate of 10% {In general, the present value (PV) could be calculated as where PV = Present value X = Relative cash flow = Rate of interest or sometimes cost of capital 8 = The appropriate numbers of years ‘9.3 Present value method When using the present value method in comparing cashflows, all expenditures and incomes, whenever they they occur, are.compared using a common year. This year is called the base year. Future costs are discounted to reflect their cashtlow timing. Once these future cashflows are discounted, they may be compared properly to costs and income incurring during the base year, or “today”. When this discounting is accomplished, all cashflows are weighed on a common basis and can be added together to obtain a total present worth value. ‘The discounting factor is (ane where the rate of return n= the number of years Note : The investment occurs in year 0 and all cashtlows occur afterwards 56/655/CD60300-3-3 © IEC:199X -36- 60300-3-3 © CEI:199x The uniform Present Value, PVu, for a recurring annual cost of “A* occurring over “y* years considering a discount rate of rd (arg Yat Example: A system is planned to be bought and installed. The lifetime for the system is expected to be 15 years. The system is expected have to be modified after 10 years. Price including installation: $45000 (to day) Cost for modification: $2000 ( 10 years from now ) Annual operating cost: $4000 (to day) Annual maintenance cost: $2000 (to day Discount rate: 10% The total Present Value cost of the system over 15 years is then: $4500 $2000 x 1/(1 + 0.1)! = $20000 x 0.386 = $7720 (140.195 +4 PV operating costs (PVu) = amvonneeneeenwnee x $4000 = 0.1 (1+ 0.1)" (1+0.1)"- ~s=+ x $2000 = $7.605 x 2000 = $15210 0.1(1 + 0.1)" Pvjotai = $45000 + $7720 + $0420 + $15210 = $98350 PV initial cost PV modification (PVs) 4 7.605 x 4000 = $30420 PV maintenance costs (PVu) = 9.4 Net present value ‘The net present value (NPV) is the difference between the present value of a future flow of profits arising from a project and the capital cost of the project. ‘The net present value is calculated as the discounted value of the revenues less the discounted value of the costs. Methods for calculation of the net present value are given in IEC 60300-3-3, clause 6. The net present value is widely used and accepted in industry and is a powerful toot in analyses that involve comparisons among project alternatives. The net present value calculation gives result which provides the expected amount of profit to be made on an investment. 9.5 Internal rate of return Internal rate of return is that rate of interest which discounts the net revenue stream over time generated by an investment such that the present value of the net revenue flow is equal to the capita! sum invested. 96/655/CD60300-3-3 © IEC:199X -37- 60300-3-3 © CEI:199X {In other words, the internal rate of return (IRR) is calculated as the discount rate that gives a net present value of zero for a given set of cash flows associated with a product/investment. Internal rate of return may be used in investment appraisal to determine whether a prospective investment is viable. if the internal rate of return is greater than an investor's Tequired rate of return, then the product is deemed to be profitable based on the required given return, The internal rate of return has in some applications a limited use because it is easily distorted by irregular or uncertain cash flows. 9.6 Cost- benefit analysis ‘The benefit cost ratio (BCR) is calculated as the discounted value of the benefits divided by the discounted value of costs. Benefits relate to the organisation's functions and goals; for private companies, these are in terms of revenue stream of profits; for public companies, ‘these may include quantified benefits to the users of the product. Costs relate to the scarce Tesources used in producing the product. ‘The BCR is used in comparing expenditure alternatives when costs are to be rationed among the best of a large number of products or design alternatives. 9.7 Escalation ‘The purpose of this clause is to explain the application of LCC to the purchase of products which are affected by rising costs. Recurring costs that grow at a steady annual rate may be treated as an annual compounded series. Hf, for example, there is a certain recurring cost, and A = todays annual cost fe = the annual rate of cost rise tg = the discount rate y= _ the number of years over which the cost is being calculated then the Present Value, PV, for this recurring cost will be AQ +t AC + te? AU + te” PV (+t) (+ ra? (ray Note: It is assumed here that cost escalation and discounting applies starting with the first year. Example In this example, the present value of the cost of the energy, expected to be consumed by a product, needs to be calculated. The planning time period is 5 years. The energy consumption is 100,000 kWh/year. The today’s price is UCO.1 per kWh. The expected escalation rate is 8%. 56/655/CD60300-3-3 © IEC:199X -38- 60300-3-3 © CEI:199X The discount rate is 10%. Today's price is 100,000 x 0.1 = UC10,000 a year We have that PV = 10,000 x 1.10 1.102 1,108 0,000 x 4.734 = UC 47,340 Discount - Escalation formula A general formula to calculate the present value, PV, of a series of y annual payments growing at ro% a year and discounted at rq% is given below. ‘The annual payments are: Year1 Year2 Year 3 Year y UC x (1 + te) UCX (1+)? UC x (T+ re® = = = = UCT X(T + te) ‘The discounted annual payments are then: Year 1 Year2 Years Yeary 14te 2 14t)e 3 } UC xt Teg t4tg UC x { Using the geometric series the following formula for PV can be defined: 14te ttle y (1-(-———-) 140s 14+te 14tte 9.8 Cost influencing factors 9.8.1 Inflation Due to the difficulties in accurately predicting inflation, it is usual for LCC analysis to be prepared at "constant prices”. Sometimes however, for example, in the case of a product with short life cycle, it may be possible to predict or agree io a rate of inflation to be included in the LCC analysis. ‘The money value of costs and benefits should be expressed in ‘real terms’. With inflation, the price of later costs and benefits arising earlier. But general inflation does not alter their value in real terms, that is, in terms of the value of money or general price level at a specified date, for example ‘Today’. It is the real value of money that matters in LCC enalysis, so it is convenient to express all costs and benefits in real terms 56/655/CD60300-3-3 © IE With this approach, there is usually no need to forecast future changes in the general price level. }99X -39- 60300-3-3 © CEI:199X However, if the price changes of particular goods or services are expected to be considerably greater or less than general rate of inflation, the changes need to be taken into account. This could be done by using the following procedure. The cost in stable value of money at year number N is: CN) = C(O) x (1 + ni) where C(N) = Cost at year number N C(0) = Cost based upon the present price f= Net rate of price increase, positive or neg: /e, per N years, The rate of increase of costs for labour, energy, material or for other cost elements may be expected to be higher or lower than the general inflation. It is important to ensure that cost elements and their dependencies that are affected by inflation are addressed only once in order to avoid "double counting”. 9.8.2 Taxation ‘Taxes and subsidies (including grants and tax expenditures) can affect relative prices. Market prices which include them may, for this and other reasons, not accurately reflect opportunity cost or benefit. In LCC analysis, the adjustment of market prices for taxation is appropriate only where the adjustment may make a material difference. This is a matter for case by case judgement, but it may be important to adjust for differences between options in the incidence of tax arising from different contractual arrangements, such as in-house supply versus buying-in, or lease versus purchase. It is usually desirable to exclude most indirect taxes. “Value Added’ type taxes in particular should normally be deducted from the market prices of inputs and outputs and thus excluded from the main appraisal calculations. No such adjustment should be made tor direct taxes ‘such as income and corporation taxes, nor for import tariffs or property rates. Direct taxes, import tariffs and rates should normally be treated like any other costs, and should be included in the normai way. ‘An economic argument can be made suggesting that the effect of taxes and subsidies should be removed from prices, when determining user benefits of government products. Unless one component has a particularly large tax or subsidy, it is unlikely that this adjustment of prices would affect the decisions that are made. 1 the company is subject to federal and state income taxes, allowance for such taxes may be made in the LCC analysis. Taxes may be a critical factor in the decision among different alternatives. Tax-deductible expenses reduce the income subject to taxes. The expenses to be incurred from a project should be stated in the LCC analysis as their after-tax equivalents. A company Paying 40% of its income in income taxes would incur expenses at only 60% of their value, In general, the cost of expenses to the company will be (100% - tax rate) x expenses 56/655/cD60300-3-3 © IEC:199X ~40- 60300-3-3 © CEI:199X 9.8.3 Exchange rate The exchange rate is the price at which one currency is exchanged for another currency. This rate will change depending on supply and demand conditions for the relevant currencies in the market. The exchange rate should be considered when products and services are bought from or sold to different countries and in different currencies. 9.8.4 Investment and depreciation All costs for purchasing a product and getting it into operation are considered investments. All the investments or corresponding capital costs are included in the LCC.The Lite Support Cost contains only the investments or corresponding capital costs for operation and maintenance resources. Usually, the investments have to be paid during the present year (year zero). They may, however, be financed in a way that spreads out the costs over a future period, as yearly capital costs in an equivalent yearly cost presentation. The product may have a defined period of decrease in value, after which there may be residual value corresponding to possible income of selling the used product at that time or later. This residual value may be zero in some cases. For some products there may be costs to dismount and scrap it at the final end of use. In this case the residual value may be negative. The formal depreciation of the investment capital does not necessarily follow this actual decrease in value. For the purpose of LCC analysis, however, it is practical to assume the decrease in value of the product and the depreciation of the investment capital to be equal. This situation is shown in Figure 9. The yearly depreciation,vg, may be stated as a nominal amount, of a real amount, i.e, a constant amount in stable value of money. 86/655/CD60300-3-3 © IEC:199X -41- 60300-3-3 © CEL:199X . Year number —_—_—_ > Period to be analysed, P Figure 9. Remaining value as a function of year number. The yearly depreciation Is vq, the depreciation period D, and the residual value R. When the equivalent yearly costs are used to present LCC, the investment capital is supposed to give rise to yearly capital costs. These consist of a depreciation amount each year during the depreciation period, and an interest on the remaining value each year. The capital cost, C(N), at year number N is as follows, with C(N), vd and Ri expressed in stable value of money; CIN) =Va4te x (I-Nxvd) forN < D =texR forN > D where vd = the yearly depreciation amount = (RVD fc = __ calculation interest rate 1 the investment capital R |= Nxvdx D =the residual value D —=_the depreciation period in years. Here the calculation interest rate, rc, is expressed in total interest. 10 Presentation of results The results of the LCC analysis should be presented in a way that allows users to clearly understand both the outcomes and the implications of the analysis. See IEC 60300-3-3, clause 7.5, LCC analysis documentation. In this Annex examples of presentation of cosrs related to cost breakdown structure are shown in clause 6.7.6. 56/655/CD60300-3-3 © IEC:199X ~42- 60300-3-3 © CEI:199x ‘An example of a product breakdown structure and LCC summary for a railway vehicle is shown in Appendix B. In Appendix C the use of a spreasheat for LCC analyses and for presentat illustrated. n of the results is 56/655/cD60300-3-3 © IEC:199X -43— 60300-3-3 © CEI:199X Appendix A (informative) Examples of LCC model development In this Appendix, simplified examples of life cycle cost model development showing possible ways to identity cost elements are presented. In Appendix A1 a LCC model based on the six major life cycle phases is illustrated. ‘The example in Appendix A2 illustrates a LCC model where LCC at level one is divided into acquisition cost and cost of ownership. Al Example 1: Life cycle cost model development ‘The model in this example is developed based on costs in different life cycle phases of anew product. 1 FIRST LEVEL BREAKDOWN LOC = Cop + Cov + Cu + Cr+ Com + Co where Lec = Life cycle cost Coo S Cost of concept and definition phase Coo Cost of design and development phase Cu = Cost of manufacturing phase Ca = Cost of installation phase “Com = Cost of operation and maintenance phase Co = Cost of disposal phase 2 SECOND LEVEL BREAKDOWN 24 CONCEPT AND DEFINITION (CD) Coo = Coon + Ccom + Coon + Coos where Coon = Cost for market research Coom = Cost for project management Coon = Cost for system concept and design analysis Coos = ~—_ Cost for requirement specification 56/655/CD60300-3-3 © IEC:199X -44- 60300-3-3 © CEI:199X 22 2.3 2.4 DESIGN AND DEVELOPMENT PHASE (DD) Coo = Coou + Coon + Coor + Coos + Coor + Coov + Cova + CDDR + CDDE where Coom = Cost for project management Core = Cost for design engineering Coco = Cost for design documentation Coor = Cost for testing, evaluation and validation Coos = Cost for software development Coop = Cost for producability engineering and planning Coov = Gost for vendor selection Coco = Cost for quality management CppR = Cost for risk analysis DDE Cost for environmental impact analysis, MANUFACTURING PHASE (M) Cm = Cun + CMR where CMN = Cost for manufacturing, non - recurring Cun = ~—_ Cost for manufacturing, recurring INSTALLATION PHASE (1) Ci= CIN + CIR Where CIN = Cost for installation, non - recurring Ca Cost for installation, recurring 56/655/cD60300-3-3 © IEC:199X -45- 60300-3-3 © CEI:199X 25 OPERATION AND MAINTENANCE PHASE (OM) Cou = Como + Couc + Cour where Couo = Cost for operation Come = Cost for corrective maintenance Cour = Cost for preventive maintenance Comu = Cost for upgrading 26 DISPOSAL PHASE (D) Co = Cos + Coo + Con where Cos = Cost for system shutdown Co = ~—Cost for disassembly and removal Con = Cost for recycling or safe disposal 56/655/CD60300-3-3 © IEC:199x -46- 60300-3-3 © CEI:199x Examples of third level breakdown cost for the operation and maintenance phase. 3.5 3.5.1 3.5.2 3.5.3 3.5.4 OPERATION AND MAINTENANCE PHASE Operation cost ‘Como = Comor + Conom + Comor +> == where Cou. = Cost for labour Couom = Cost for material and consumables Comoe = Cost for power etc. ective maintenance cost Come = Comer + Comcr + Conce + Concs where Comce = Cost for labour Comcr = Couce = Cost for contractor services Coucs = Cost for software maintenance ete. Preventive maintenance cost Uparading cost 56/655/CD60300-3-3 © IEC:199X -47- 60300-3-3 © CEI:199X A2 LCC model based on acquisition cost and ownership cost In this example, a LCC-model consisting of seven levels is illustrated. It should be noticed that the model is not complete, it is just an illustration of how a LCC model may be structured and how the costs associated with some of the different cost elements may be calculated. For some parts, the cost breakdown structure is presented down to lowest desirable level, for other parts the intention is just indicated. It it is desirable to compare all costs at the same base date, present value or a similar method may be used. Also this is illustrated in the example. 1. Hierarchical structure Leveli Level2 Level: Level4 Level5 Level6 —Level 7 Lcc—7— Lcca L. .Lccos- sc Cl cis cisc rn IM cimR L_ cimc f— cit— citc | CITI — cITM t— CID cipc ~ ADPxCY — CYC —— CYCM T CYCMM CYCMS | cYP — CYPM ‘— cys —— cysP r- co FLUC 56/655/CD60300-3-3 © IEC:199X -48- 60300-3-3 © CEI:199x 2 Cost elements level 1 to 7 24 Life Cycle Cost, LCC (level 1) LCC = LCCA + LCCO where cc Loca teco 22 Life cycle cost as defined for this model. Acquisition cost (Investment cost of resources for oper: ‘support excluded). ‘Ownership cost and maintenance Life cycle cost, ownership, LCCO (level 2) LOCO = LSC + LUC where usc Luc 23 where usc ca cy co 24 2.4.4 Lite support cost. Lite unavailability cost. Life support cost, LSC (level 3) Life support cost. Cost for investment in maintenance support resources. Cost for maintenance, annual (per year) Application factor to consider the number of years and interest to be used. Cost for operation. Level 4 Costs (exemples) Cost for investment Cost for investment in maintenance resources, Cl: Cl = CIS+CIM+CIT+CID where cis cm cit ciD Cost for investment in spares Cost for investment in maintenance equipment, instruments and tools. Cost for investment in training. Cost for investment in documentation. 56/655/CD60300-3-3 © IEC:199X ~49- 60300-3-3 © CEI:199X 2.4.2 Cost for operation Operating cast, CO, may be calculated by adding the following cost elements as appropriate: Energy consumption cost + Person hour cost = Material consumption cost = etc. For costs that will be constant through the lifetime, the annual cost may be multiplied with a discount factor { to get the cost over the lifetime. (+r) Where to = The base year for the evaluation. ty = The time for start up of operations. M = Number of years in operation. R= The discount rate to be used for the evaluation. 2.5 Example level 5 Cost of investment in maintenance equipment, CIM CIM = NCxCIMC +NR x CIMR Where CIMC = Cost for investment in maintenance equipment for a central workshop. CIMC = Cost for investment in maintenance equipment for a regional workshop. NC = Number of central workshops. NR = —_ Number of regional workshops. 2.6 Example level 6 2.6.1 Cost elements level 6 cise Cost for investment in repairable units at central level. CISR = Cost for investment in repairable units at regional level. cme Cost for investment in maintenance equipment for all regional workshops. cimc Cost for investment in maintenance equipment, tools, lifting aids etc. tor central workshop. CITC = Cost for investment in training. crm Cost for investment in instructions. 56/655/cD60300-3-3 © IEC:199X -50- 60300-3-3 © CEI:199x CITM = Cost for investment in training material. CIDC = Cost for investment in documentation. CYCM= Annual cost, corrective maintenance. CYPM= Annual cost, preventive maintenance. CYSP = Annual cost, consumption of spare parts. 2.6.2 Cost for investment Cost for investment ir maintenance equipment for a central workshop, CIMC. mM CIMC = OIMC x AC x APV x 5 NMC(J1) x CSMC(J1) Jt= OIMC = —Zero-seiting constant for this equation AC = Application factor adjusting from contractor currency APV = Application factor due to possible existence of price variation clauses related to contractor and investment. M = _ Number of different types of maintenance aids needed at the central workshop. NMC(J1) = Number of maintenance aids of type J1 at central workshop. CSMC(J1) = Unit cost for maintenance aid of type J1. 2.6.3 Annual costs, corrective maintenance, CYCM CYCM = CYCMM +CYCMS where CYCMM = = Person hour cost. CYCMS = _Cost for spare parts consumption. To calculate CYCMM, i.e., the average annual corrective maintenance person hour cost the following formula may be used CYCMM = OYCCM x Ay x 8760 x MRT x PxM where oycem Zero-setting constant for this equation cycum, Average annual person hour cost for corrective maintenance. as Total failure rate as number of failures per hour. This includes all failures. 8760 Number of hours in a year. 56/655/CD60300-3-3 © IEC:199X -51- 60300-3-3 © CEI:199X MRT = Mean Repair Time. The time in hours it takes to repair a faulty item back to operating conditions. P = The number of persons required to do the work. uM = The person hour rate. ‘The average annual costs may be discounted as shown below. ‘The base year for the analysis is established. All costs are then discounted back to this base year to take into account the time value of money. For this, the following formula is applied: ~ a & z- t20 (1 +k) where S, = Net cost in year t. This can be assumed equal for all the years, it can vary according to Production, or it can have some other given variation throughout the lifetime. N= The lifetime of the equipment/ function to be evaluated. When the required lifetime of the equipment exceeds the expected lifetime, the required life is used. K = The discount rate/interest rate to be used for the evaluation. To calculate the average annual corrective spare parts consumption the following formula may be used: CYCMS = OYCMS x Ay x 8760 x Average annual spares where OYCMS = — Zero-setting constant for this equation CYCMS= Average annual corrective maintenance spares consumption. Ax =Total failure rate as number of failures per hour. This includes all failures. 8760 = Number of hours in a year. Average annual spares = Average spares needed per year for repair of the equipment. The average annual cost may be discounted as shown earlier. 56/655/CD60300-3-3 © IEC:199X -52- 60300-3-3 © CEI:199X Appendix B (informative) Example of a product breakdown structure and LCC summary for a Railway Vehicle Railway Rolling Stock Acquisition Railway operators around the world are increasingly applying life cycle costing to assist in the choice between tenders for the supply of rolling stock and fixed installation equipment. The example illustrates a work breakdown structure (WBS) for a rail vehicle that is used as the basis for an LCC model for the fleet of multiple units to be procured. For each item of vehicle equipment specified within the generic WBS (see Figure 1) LCC data (by Cost Category) is provided by suppliers for their respective equipment, a on floppy disk, spreadsheet format, for input to the LCC model. The LCC model contains details of the fleet, multiple unit consist, and equipment used in each vehicle of the multiple unit. It also contains the labour and overhead rates, and power consumption usage and costs local to the territory where the vehicles will be operated and maintained. The LCC model is designed to produce various reports for a variety of purposes. The table shown in figure 2 is a high level summary that illustrates the distribution of the costs by WBS and between the various cost categories. 56/655/CDaoysss/9s suoishs ojouoj soe Buyers9 soe sfeatueg 501 suoqequnuwes waists p09 mg 108 aay 90S womeit yo saidae9 v0 “nuoo oHog ‘pea ear oyesouep cot wou 80 Supra oid mous 206 09018 209 ereuadsns 20'2 wos L108 omg io 7ea6 uni epeds 078 100 upyeia o'9 vojsindoid o'y | | Atddns somo ove} | pur sei6oa o'e Hp09896 nan ‘won edn “aaiouseoy OWA kemuey ‘oumjonsys uMopyeedg JONPOId WE}SKs 9}914OA X661:130 © €-€-00809 seg X661:031 €-€-00609aoyss9/9s % 00 seven [cove eos ‘382 vis86 608 ° ° were oe e8e oO z ~_ |e ele ay 9 11 oe e ° ° ° ° ° ° 0 oe 188 ° ° ° ver ey 8 ier eunea] 09 co e et ° 0 ° ° sir ay] os Orie on 368 2608 vise ene e50e wosindora| OF ries ° ° ° e ° e “Ties: “dane wenoa] Oe sres ° ° ° 3 e 0208 een unr veotoa] Oz 0208 ser 02 8108 res | Aeoaea| 0] 19 9109 mmo wien, io ent Wen, pauae on | ‘pause-uon | "pouss | “paves sends | _unboy juasea uisishs | Som quouidinbe Aq Asewuins 4809 9949 0517 X661:130 © €-€-00¢09 9g X661:031 €€-0060960300-3-3 © IEC:199X -55- 60300-3-3 © CEI:199X Appendix C (informative) Use of spreadsheet for LCC analysis C.1_ Example of spreadsheet In this Appendix, an example of a spreadsheet with typical information for an LCC analysis is presented. ‘The spreadsheet is indicative of the costs that may occur over the life cycle phases of a productiproject. In entering the data over the life, it has to be decided if the costs are real or nominal. The future costs should be discounted to be compared properly to costs occurring during the agreed upon base year. Each of the relevant activities may be broken down into a number of cost categories (e.9. labour, matarials) as appropriate for the level of detail required. ‘The spreadsheet should be tailored to suit the specific product/project 56/655/CD60300-3-3 © IEC:199X Cost generating activities Concept and definition phase Market research 1H Project management ‘Concept and design analysis Product requirement spec. pr ‘GONGEPT AND DEFINITION TOTALS ion ign and development phaso Project management Design documentation Prototype fabrication “Testing and evaluation Producibilty engineering and planning ‘Vendor selection Demonstration and validation ‘Quality management DESIGN AND DEVELOPMENT TOTALS Manufacturing end installation phase =56- Yearo Yeart Year 2 Yor 3 60300-3-3 © CEI:199X Yoar 4 Years Your Nonsecuing | 1 engnondng aod operaoal sala © consvctonuchase I Prodsction tng and te aupment 1 Spaial suppon and ies eqioman a sieges = = = a Now RECURRING TOTALS seeing I Proccn maaan and engentng 1 Facty maictonance 1 Fatrenton BE ovaliy cont and napecton Assent, staiaton and checkout 1 Ongoing taining insurance RECURRING TOTALS. 56/655/CD60300-3-3 © IEC:199X -87- 60300-3-3 © CEI:199X Cost generating activites Yearo Year _Yoar2__Year3_ Year 4 ‘Operation and maintenance Operation. Training Consumables 'H_Equipmont and facilities 1H Engineering modifications ‘OPERATION TOTALS Maintenance Training ‘Spare parts and consumables Equipment and facies Contract services ‘Routine maintenance ‘Major programmed maintenance ‘Unscheduled maintenance = = = = ‘SIT support = = = MAINTENANCE TOTALS. Support services ‘&_Corporate management "BH Aaministrative overheads ‘insurance SUPPORT SERVICES TOTAL Disposal system shutdown ‘BH _Dicassembly and removal 1B Recycling or sate disposal Product rosidual valve DISPOSAL TOTALS TOTAL Discount factor NET PRESENT VALUE ‘TOTAL NET PRESENT VALUE 56/655/CD60300-3-3 © IEC:199X -58- 60300-3-3 © CEI:199x C.2 Example of spreadsheet for the maintenance phase used for a school An existing school currently caters for 90 children, although capable of catering for 210. The premises are in sound condition but costly to maintain, mainly due to the oversizing. ‘The Client Department wants a 20 year study of two options: 1. Refurbish and maintain the existing school. 2. Build a new school for 90 pupils on a new site, dispose of the existing site, maintaining the existing school until the new one is complete. ‘The figures in the example, have been calculated elsewhere and inserted on the spreadsheet. ‘The annual total of costs has been discounted by the appropriate rate for that year. In the example there have been asset sales which show themselves as negative costs. The annual totals are aggregated to give the Net Present Value. ‘The summary indicates that the Net Present Value, whilst being a factor is not the sole consideration. The advantages and disadvantages require some form of judgment to reach a decision. 56/655/CDa9/ss9/95 onunnogsia awa AN3s3ue W1OE soese useue over seer 6e8¥ s1i0s 9060s eoe0e esos e1969 zoree serzzszezse oreo ovso12 nwa 1N383us sero sseeo sero siv0 Isuvo aor Gey zes0 czz99 evo eID ezer0 reo 99080 nest) et oer oogtty Ooai11 o00szi COBIt4 Coutbs oabth oogtee —oostee 20001 ooco1 0001, (90008 99008 90004 680 00001 0005 00001 00010001 ogzt cosa osat ‘oopztoaztoszI—oO8eI—ooazl 082i oo9k —oo9et core cove ore ‘ore core ore core. 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Got 00d ooze 002 0B ONL OURL OUR ONEL OUR —OOEL—OOEL«—OOeL.«UL”—«(RL. «zk. «RE ONE oooeer oovee —ovoree cooaee a a Ta X664:130 © €-€-0009 ~09- JOOHOS AUVIItd LNaW3OV1d3H aINg X664:031 © €-€-0060960300-3-3 © IEC:199X -61- 60300-3-3 © CEI:199X 2 Example of Life cycle ‘Summary OPTION N° 1 2 Description Maintain existing school _ Build replacement school Sensitivity, Present Value Rate $ Millions $ Millions 7% 1.50 1.29 4% 1.79 1.41 10% 1.29 1.19 Advantages Avoid relocation of school Improved buildings and teaching environment Aids curriculum development of science and computer education Improved outside play facilities Contributes to regeneration of area Disadvantages 7 Building difficult to supervise Invoives relocation of schoo! as on two floors Poor buildings and teaching environment Restricted opportunities of curriculum development of science and computer education Inadequate outside play facilities 56/655/CD