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Cost Life Cycle - Essay Example

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Cost Life Cycle

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.
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.
Decision-makers sometimes want to know the maximum cost of an input that will allow the project to still break even, or conversely, what minimum benefit a project can produce and still cover the cost of the investment.
To perform a break-even analysis, benefits and costs are set equal, all variables are specified, and the break-even variable is solved algebraically.

Design optimization on cost basis is also carried out under LCCA to hit upon the model, which would lead to higher performance at lower costs and competitiveness in a systematic and efficient manner. Safety, reliability and cost efficiency can be achieved through design optimization in the pre-launch phase itself.

References
1. www.nianet.org/salectureseries/pdfs/Unal_041106.pdf
2. ...Show more

Summary

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 maximised.
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…
Author : huelsjacques
Cost Life Cycle essay example
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