Introduction to Life Cycle Costing

Introduction

This knowledge-building course covering the use of Life-Cycle Cost (LCC) analyses to communicate solutions to management and members of the financial community. LCC evaluates many alternatives to identify the alternative with the least total cost of ownership. Evaluations are based on the entire cost of ownership including design, procurement, installation, maintenance, repair, and disposal costs. LCC analyses are based on the concept of Net Present Value (NPV) and can be discrete or probabilistic in nature. Participants will learn how to put reliability engineering skills into financial accounting terms. Each attendee will also learn techniques to perform real-world studies to evaluate the sensitivity of assumptions and uncertainties in the LCC model. Exercises are used to help the participants learn the concepts and the step-by-step process of an LCC analysis.

Objectives

By the end of this course, participants will learn

• What Life Cycle Costing (LCC) is
• The difference between standard costing and LCC
• How to determine the entire cost of ownership
• How to calculate the net present value (NPV)
• How to quantify reliability engineering activity into financial terms
• How to perform real-world LCC studies
• How to present LCC data to management and the financial community
• What is the LCC philosophy
• The steps for performing an LCC analysis
• The concepts of Net Present Value and Future Present Value
• How to use LCC to make better asset acquisition decisions
• To communicate the results of the LCC analysis
• Recognize when an LCC analysis is warranted
• To test the assumptions and uncertainties of the LCC analysis
• To become familiar with financial concepts such as net savings, savings-to-investment ratio, adjusted internal rate of return, and discounted payback
• To use LCC to evaluate the varying efficiency levels of competing designs
• How to use LCC for value engineering to buy the right solution based on long term cost rather than the least cost solution today

Target Audience

Plant, equipment and reliability engineers, supervisors, and managers with little or no previous financial experience 

Reliability Engineering Outline

The course covers the following topics:

• Introduction to the basics of finance in reliability
  • Balance sheet
  • Profit/loss statement
  • Cash flow statement
  • Depreciation
  • Ratios
• Introduction to Time Value of Money (TVM)
  • Net Present Value (NPV)
  • Future Present Value (FPV)
  • Return on Investment (ROI)
  • Internal Rate of Return (IRR)
• Time Value Analysis and Life Cycle decision making
• Plant equipment project analysis
  • “Putting it all together
  • effects and treatments for taxes
  • Driving improvement with Life Cycle Cost