Life Cycle Costing

Designed for:

This is a knowledge-building course that covers the use of life-cycle cost (LCC) analyses to communicate solutions to management and members of the financial community.  This course is especially designed for plant, equipment and reliability engineers, supervisors and managers with little or no previous financial experience.

You will learn:

• What is LCC?
  
• Difference between standard costing and LCC
  
• How to determine the entire cost of ownership
  
• How to calculate net present value (NPV)
  
• How to quantify reliability engineering activity into financial terms
  
• How to perform real-world LCC studies
  
• How to present LCC data to management and the financial community
  
• What is the LCC philosophy
  
• Learn the steps for performing a LCC analysis
  
• Know the concepts of Net Present Value and Future Present Value
  
• Use LCC to make better asset acquisition decisions
  
• Learn to communicate the results of the LCC analysis
  
• Recognize when a LCC analysis is warranted
  
• Learn to test the assumptions and uncertainties of the LCC analysis
  
• Become familiar with financial concepts such as Net savings, savings-to-investment ratio, adjusted internal rate of return and discounted payback
  
• Learn to use LCC to evaluate the varying efficiency levels of competing designs
  
• Know how to use LCC for value engineering to buy the right solution based on long term cost rather than the least cost solution today

About the Course:

LCC evaluates many alternatives to identify the alternative with the least total cost of ownership. Evaluations are based on the entire cost of ownership including design, procurement, installation, maintenance, repair, and disposal costs. LCC analyses are based on the concept of net present value (NPV) and can be discrete or probabilistic in nature. Participants will learn how to put reliability engineering skills into financial accounting terms. They will also learn techniques to perform real-world studies to evaluate the sensitivity of assumptions and uncertainties in the LCC model. Exercises are used to help the participants learn the concepts and the step-by-step process of a LCC analysis.

INTRODUCTION TO THE BASICS OF FINANCE

1. History
   Definitions
   • Balance Sheet
     Profit/Loss Statement
     Cash Flow Statement
     Depreciation
2. Ratios
3. Defining and Understanding Risk
4. Defining and Understanding the Life Cycle of Assets

INTRODUCTION TO TIME VALUE OF MONEY (TVM)

1. History
   
2. Definitions
   
   • Net Present Value (NPV)
     
   • Future Present Value (FPV)
     
   • Return on Investment (ROI)
     
   • Internal Rate of Return (IRR)
3. TVM Application Exercises

TIME VALUE ANALYSIS

1. Interest and Inflation
   
2. Gradient Functions
   
3. Perpetuity
   
4. TVM in plant equipment Exercises

LIFE CYCLE DECISION MAKING

1. Breakeven Analysis
   
2. Minimum Cost Analysis
   
3. Replacement Analysis
   
4. Exercises in plant equipment decision making

PLANT EQUIPMENT PROJECT ANALYSIS

1. “Putting it all together”
   
2. Effects and Treatments for Taxes
   
3. Driving Improvement with LCC

REVIEW THE WEEK’S LEARNINGS

• What is LCC?
  
• Difference between standard costing and LCC
  
• How to determine the entire cost of ownership
  
• How to calculate net present value (NPV)
  
• How to quantify reliability engineering activity into financial terms
  
• How to perform real-world LCC studies
  
• How to present LCC data to management and the financial community
  
• What is the LCC philosophy
  
• Learn the steps for performing a LCC analysis
  
• Know the concepts of Net Present Value and Future Present Value
  
• Use LCC to make better asset acquisition decisions
  
• Learn to communicate the results of the LCC analysis
  
• Recognize when a LCC analysis is warranted
  
• Learn to test the assumptions and uncertainties of the LCC analysis
  
• Become familiar with financial concepts such as Net savings, savings-to-investment ratio, adjusted internal rate of return and discounted payback
  
• Learn to use LCC to evaluate the varying efficiency levels of competing designs
  
• Know how to use LCC for value engineering to buy the right solution based on long term cost rather than the least cost solution today

For more information about training,
please email us at training@alliedreliability.com