Life Cost Analysis on New Projects
Life cycle costing analysis can be carried out during any phase of an asset’s life cycle. It can be used to provide input to decisions regarding asset design, manufacture, installation, operation, maintenance support, renewal/refurbishment and disposal.
The objectives of life cycle costing are:
- Minimize the total cost of ownership
- Determine if the project meets the requirements for addressing project viability.
- Identify the cash flow requirements for projects
The best opportunities to achieve significant cost reductions in life cycle costs occur during the early concept development and design phase of any project. At this time, significant changes can be made for the least cost. At later stages of the project many costs have become “locked in” and are not easily changed.
To achieve the maximum benefit available during this stage of the project it is important to explore the following:
- A range of alternative solutions
- The cost drivers for each alternative
- The time period for which the asset will be required
- The level and frequency of usage
- The maintenance and/or operating arrangements and costs
- Quantification of future cash flows
- Quantification of risk