1. Life Cycle Cost
Analysis
Ankur Bansal 09010408
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2. Life Cycle Cost (LCC)
Life-cycle cost analysis is a
process for evaluating the total
economic worth of a usable
project segment by analysing
initial costs and discounted
future costs.
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3. Why Use LCC?
Project Maintenance
Engineering Engineering
Shareholders Production
Reliability
Accounting
Engineering
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4. Key Parameters used in calculating Life
Cycle Cost
• Time Value of Money
1. Rate of Return
2. Inflation
• Opportunity Cost
• Discount Rate
• Analysis
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5. Steps to determine life cycle costs:
• Establish alternative design
strategies.
• Determine activity timing.
• Estimate agency costs.
• Estimate user costs.
• Determine life-cycle cost.
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6. Costs Involved
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7. Costs Involved
 Indirect Costs
• Motorist delay time
• Vehicle operating costs
• Accident Costs
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8. Calculation of Life Cycle
Cost
Deterministic
• An Exact Cost is Determined
Probabilistic
• A range of Values is determined with a specific
probability distribution.
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9. Steps Involved
• Step 1-Identify what has to be analysed and the time
period for the project life study along with the
appropriate financial criteria.
• Step 2-Focus on the technical features by way of the
economic consequences to look for alternative
solutions.
• Step 3-Develop the cost details by year
• Step 4-Select the appropriate cost model, simple
discrete, simple with some variability for repairs and
replacements, complex with random variations, etc.
required by project complexity.
• Step 5-Cost details are acquired.
• Step 6-Yearly cost profiles are found.
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10. Deterministic Approach
• Fixed discrete values are assigned to
various parameters and any type of
uncertainties are ignored
• LCC calculated is fixed value
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11. Probabilistic Approach
• Cost parameters are assigned with
some appropriate probability
distribution.
• Random numbers are generated
• These random numbers are used
to calculate the LCC
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12. Sensitivity Analysis
• A sensitivity analysis is performed to
understand what variables make the
largest difference in the final result.
• We can identify the model variables
that have a significant influence on
model results and/or determine break-
even points that alter the ranking of
considered options.
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13. Risk Analysis
• Risk analysis helps to estimate the levels of risk and
uncertainty within final economic decision
measures such as BCR and NPV, from uncertainty in
the key input variables feeding into the project
evaluation process. By estimating the 'riskiness'
aspect of these summary measures, a more realistic
comparison of project returns can be obtained
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