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Life Cycle Costing

Cost is a simple yet complex concept. It has many dimensions and implications attached to it. Speaking strictly in economic terms, cost is always associated with Value of Money. The cheapest alternative may not always be the best option to choose when entire life of the product is taken into account. Therefore, Life cycle costing becomes an important key.

Life Cycle Cost (LCC) analysis is a means of quantifying the choice of materials for a product or construction, with the aim of selection of the most economic alternative. Stainless steel normally comes with a initial higher cost of material, but its longer life due to excellent wear & corrosion resistance features, low requirement of maintenance and recyclability compensate for the higher initial costs and makes it a environment friendly material or ‘Green Material’.

How LCC is calculated?

LCC enables potential long-term benefits to be assessed against short-term expediency. Materials costs are assessed with their implications, for example initial outlay, maintenance and its frequency, downtime effects, production losses, repair, replacement, and other operationally related costs such as manpower and energy consumption

LCC = Acquisition Cost + Fabrication and Installation Cost + Maintenance Costs (periodic) + Replacement Costs (periodic) + Cost of Lost Production (periodic) - Residual (Scrap) Value.

Why LCC is important?

With advent of new technologies in every stream of engineering and the fast pace of the infrastructural and industrial progress in India, the engineers are faced with more and more daunting challenges in designing and constructing robust structures and machineries that are long lasting and low in maintenance. It is necessary that engineers think in terms of the total life cycle costing of their designed structures and not the initial capital cost.

Major culprit of the loss of value and reduction is useful life of any structure is either wear or corrosion in one way or the other. Corrosion causes plant shut downs, waste of valuable resources, loss or contamination of products, reduction in efficiency and costly maintenance. Awareness with respect to corrosion is very less in our country. People must develop a mindset and attitude to fight corrosion, says a player from the industry. Did you know that every year corrosion causes the USA lose 0.6 Trillion USD (about 4% of their total GDP) due to corrosion? If you think about that money, it is 33% of India’s total GDP (1.85 Trillion USD). In India, we lose about Rs. 1, 00,000 Cr to corrosion every year.

Stainless steel by virtue of its special chemical composition is one such value added material of construction that offers long lasting and low maintenance structures. A good understanding of Life cycle costing (LCC) is important to make informed choices and create values that will serve for years to come.