Developing an Equipment Lifecycle Cost Model

A common project completed by Bluefield is the development of Equipment Lifecycle Cost Models. The outputs of these models have several different applications from the assessment of purchasing new equipment to assisting in putting together maintenance budgets for existing fleets.

Quite often we find that people believe a Lifecycle Cost Model must go down to minute detail and contain complete costs on every nut, bolt and washer to be used over the entire life of the machine. What we find, however, is that Lifecycle Cost Models with this level of detail are often no more accurate than a model that has been produced using a blend of the structure and appropriate assumptions. You can be 100% wrong or mostly right.

A cost model going to the nth degree never matches real life dollar for dollar spend. There are many reasons for this, from maintenance tasks not completed at the exact frequency, to maintenance and operating practices affecting scheduled and unscheduled maintenance costs.

Bluefield believes a blended approach to building a Lifecycle Cost Model can give the best results for the time spent. There are several steps we follow to build a model from scratch, which also forms the basis of what we look at when reviewing an existing model:

  • Start with the current Maintenance Strategy executed on site
  • Review for tasks that are obviously missing
  • Estimate a value for scheduled defect repair
  • Estimate a value for unscheduled defect repair (breakdowns).

Breaking down each of these elements the best starting point is to start with the current site strategy which is loaded in the computerised maintenance management system (CMMS). This is because these tasks and costs should automatically be done at their set frequencies. Typically, this is where people see detailed task lists play an important part of budget, though often these task lists are missing.

When reviewing the inclusion of this data, we consider both the frequencies and cost to question anything that does not look reasonable. Where costs are not well defined the best place to start is the average component cost and Original Equipment Manufacturer (OEM) installation kit cost. This will put you in the ballpark.

In some cases, we add a little extra on the major tasks to allow for the miscellaneous addition costs that creep in during a rebuild to better capture reality. Where practical we review historical costs to determine what if any this should be. If the equipment / model is new to site, it is always best to start with the OEM recommended Maintenance strategy and expand the model from there.

The next step flows on where the list of maintenance tasks is reviewed to pick up tasks that may have been missed. There is a twofold benefit for this in helping the site identify potential routine maintenance that will help their equipment and making sure it is budgeted for. Other items to consider here is the equipment life and whether larger chunks of capital need to be spent at equipment for equipment rebuilds to achieve end life.

The next two steps are a little more subjective and should be based on analysis of historical spend to determine the planned and unplanned defect costs. Where it is new equipment to site, look at like equipment, look at the splits been planned and unplanned defect costs in general to help develop a reasonable estimate for site performance. It is important to consider that as a machine ages, planned defect costs will rise to some degree that should be reflected in the Lifecycle Costs.

There is no right or wrong way to develop a lifecycle cost model, however we are a firm believer in the 80/20 rule when it comes to the time spent to develop one.