Life Cycle Cost Modelling
Developing Life Cycle Cost Models is a job that is often not done properly or at all due to the misconception that it is overly complex and time-consuming process. The purpose of a Life Cycle Cost Model is forecast the costs of an individual asset, allowing us to predict where and when expenses are likely to happen over the asset’s operational life. These individual asset life cycle cost models form the building blocks of a sound Maintenance Budget, provide valuable input into Asset Replacement & End-of-Life Analysis and provide key inputs into fleet evaluation & selection of new assets.
The words Zero Based Budget are frequently thrown around in the context of Life Cycle Cost Modelling that often conjure images of pricing out every nut, bolt and washer on the asset to develop the cost model. While it is possible to go this degree, we find there is a practical middle ground using the principles of a zero-based budget to develop the life cycle cost model.
The Bluefield approach to building a lifecycle cost model is to start with the Asset Management Plan and detail out all the planned tasks that occur on the asset (Preventative Maintenance, Condition Monitoring, Structural Integrity, Statutory, Component Replacement, etc). Essentially a zero-based budget approach to ensure we capture relevant costs associated with the machine. Against each task we apply costs built up of a combination of actual component costs and appropriate cost estimates. This method ensures we are spending our time on the critical costs and not trying to obtain the exact value of $50 worth of nuts bolts and washers that are changed once every few years.
In addition to the planned tasks, we add some line items for general scheduled and unscheduled repairs. What we find is the costs associated with these items are more subjective to coming up with the right costs. There are several ways to determine the right costs. If it’s an existing asset, then historical spend is the best reference point. If the asset is new, like equipment is a reference point to start capturing the costs.
The important point is that a cost is captured and the logic behind the cost applied is documented. We find this approach to lifecycle cost modelling achieves the required outcomes without unnecessary time being spent on valuing every small part on the asset where a budget value would suffice.
Each life cycle cost model is supported with a well-documented basis of estimate. This allows for ease of understanding of the key assumptions made during development. We find this is an important part of the build to ensure clarity of understanding long after the model has been built.
Bluefield’s team of asset management specialists have worked with many clients to develop lifecycle cost models covering a diverse range of assets. We regularly engage the client in the building of assumptions and process of how the cost model has been assembled that we find provides a level of understanding and comfort in the model results.
If you are looking for the support from a partner who can help you understand the forecast cost of your assets, please contact Bluefield today.
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