Life Cycle Cost & Reliability For Process Equipment (Page 4 of 22) in pdf

Life Cycle Cost & Reliability For Process Equipment Page 4

minimizing LCC. When properly used (along with good engineering judgment), LCC provides a rich set

of information for making cost effective, long term decisions in a disciplined manner.

LCC uses net present value (NPV) concepts. NPV is an important economic measure for projects or

equipment taking into account discount factors, cash flow, and time. Net present value calculations start

with a discount rate, followed by finding the present value of the cash proceeds expected from the

investment, then followed by finding the present value of the outlays: the net of this calculation is the net

present value. Cash availability and strategies aside, when competing projects are judged for

acceptance, projects with high NPVs usually win.

Engineers must be concerned with life cycle costs for making important economic decisions through

engineering actions. This requires consideration of how and when sustaining costs occur during the life

cycle of the equipment or project. Adding expected equipment failure rates and renewals from a

statistical viewpoint makes analysis about economics smarter and gets the rational decisions closer to

real world conditions. Engineers must supply facts (not opinions) for LCC calculations and LCC failures

occur where teamwork is talked about but not practiced.

WHAT GOES INTO LIFE CYCLE COSTS?

LCC includes every cost that is appropriate. Appropriateness changes with each specific case which is

tailored to fit the situation. LCC follows a process (Fabryck 1991—Appendix A):

Life Cycle Cost & Reliability For Process Equipment Page 4