A Life Cycle Cost Analysis - Essay Example

A life cycle cost analysis calculates the cost of a system or product over its entire life span. This also involves the process of Product Life Cycle Management so that the life cycle profits are maximized.
The analysis of a typical system could include costs for:
• planning,
• research and development,
• production,
• operation,
• maintenance,
• Cost of replacement,
• disposal or salvage.
This cost analysis depends on values calculated from other reliability analyses like failure rate, cost of spares, repair times, and component costs.

Risk Analysis, Sensitivity Analysis, and Optimization

Performing an LCCA(Life Cycle Cost Analysis) in the design stage itself makes sure that a project that is economical from all aspects, in the long run, is chosen. Yet, there may l be some uncertainty associated with the LCC results. LCCAs are usually performed early in the design process when only estimates, rather than exact amounts of costs and savings are available. Uncertainty in input values means that actual outcomes may differ from estimated outcomes.

There are techniques for estimating the cost of choosing the "wrong" project alternative. Deterministic techniques, such as sensitivity analysis or breakeven analysis, are easily done without the need for additional resources or information. They produce a single-point estimate of how uncertain input data affect the analysis outcome. Probabilistic techniques, on the other hand, quantify risk exposure by deriving probabilities of achieving different values of economic worth from probability distributions for input values that are uncertain. However, they have greater informational and technical requirements than deterministic techniques. Whether one or the other technique is chosen depends on factors such as the size of the project, its importance, and the resources available. Since sensitivity analysis and break-even analysis are two approaches that are simple to perform, they should be part of every LCCA.

Sensitivity Analysis
Sensitivity analysis is the technique recommended for energy and water conservation projects by FEMP. Sensitivity analysis is useful for:
• identifying which of several uncertain input values has the greatest impact on a specific measure of economic evaluation,
• determining how variability in the input value affects the range of a measure of economic evaluation, and
• testing different scenarios to answer "what if" questions.
To identify critical parameters, arrive at estimates of upper and lower bounds, or answer "what if" questions, simply change the value of each input up or down, holding all others constant, and recalculate the economic measure to be tested.


Safety, reliability, and cost efficiency can be achieved through design optimization in the pre-launch phase itself. Read More