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Market Outlook 2018: A Sunnier Mood with a Few Caveats

Market Outlook 2018: A Sunnier Mood with a Few Caveats

The atmosphere at VMA’s 2018 Marke...

Is it Time to Toss Those Commissions?

Is it Time to Toss Those Commissions?

It’s tough to pinpoint exactly wha...

Cybersecurity for Process Control

Cybersecurity for Process Control

Security for any process plant has alway...

Young Valve Professionals: Megan Johnston

Young Valve Professionals: Megan Johnston

In 2014, VMA's leadership created the Val...

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Industry Headlines

Crude Oil, Petroleum Product Exports Reach Record Levels

Thursday, 19 October 2017  |  Chris Guy

According to the U.S. Energy Information Administration ( EIA ), crude oil exports in the first half of 2017 increased by more than 300,000 barrels per ...

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Industry Headlines

Emerson Agrees to Acquire Paradigm

3 DAYS AGO

Emerson has agreed to acquire Paradigm for a purchase price of $510 million, reflecting a multiple of 13 times expected 2017 EBITDA. Paradigm will be joined with Emerson’s existing Roxar automation software. The acquisition is expected to close within the next 60 days, subject to various regulat...

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ValvTechnologies Receives ISO 15848 Certification

4 DAYS AGO

ValvTechnologies’ EcoPack technology has received ISO 15848-1:2015 certification from Odin Heavy Industries. To earn ISO 15848 certification, ValvTechnologies underwent a stringent evaluation process that included a series of 17 helium leak tests and eight thermal cycles on a fully assembled v...

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Crude Oil, Petroleum Product Exports Reach Record Levels

2 DAYS AGO

According to the U.S. Energy Information Administration ( EIA ), crude oil exports in the first half of 2017 increased by more than 300,000 barrels per day (b/d) from the first half of 2016, reaching a record high of 0.9 million b/d. Petroleum product exports also grew over the same period with propan...

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Energy Intensity in U.S. Manufacturing Decreased

2 DAYS AGO

Energy intensity in manufacturing in the U.S. decreased from 2010 to 2014. U.S. manufacturing overall fuel intensity decreased by 4.4% from 3.016 thousand British thermal units (Btu) per dollar of output in 2010 to 2.882 thousand Btu in 2014. According to the Manufacturing Energy Consumption Survey (M...

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Fed Reports Economy Growth in September, Early October

2 DAYS AGO

Reports from all 12 Federal Reserve Districts indicated that economic activity increased in September through early October, with the pace of growth split between modest and moderate. The Richmond, Atlanta, and Dallas Districts reported major disruptions from Hurricanes Harvey and Irma in some areas a...

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Industrial Production Up 0.3% in September

3 DAYS AGO

Industrial production rose 0.3% in September. The rates of change for July and August were notably revised; the current estimate for July, a decrease of 0.1%, was 0.5% lower than previously reported, while the estimate for August, a decrease of 0.7%, was 0.2% higher than before. Manufacturing output...

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Life-Cycle Costing

vmwnt12_lifecycleFor most of us, the purchasing process is relatively simple: Find the lowest cost for the desired item, make the purchase and then move on to the next task. However, the purchase price may only be the first installment of that cost.

Too frequently the simple, short-term view of looking at the price only results in a purchase that ends up costing much more over a period of time than the original price tag. What’s more, the entity doing the buying may be pulled back to revisit that purchase multiple times if the item fails prematurely, turns out to be less efficient than expected, requires more time to install or maintain than anticipated, or some other, unanticipated problem comes up.

In the 1960s, life-cycle costing (LCC) became popular as a means to evaluate the true cost of something over its entire useful lifetime. LCC seeks to quantify all costs associated with ownership. In addition to the initial cost, LCC commonly attempts to weigh factors such as the cost to install, maintain, repair, operate, replace, even dispose of an item, and depending on how comprehensive the analysis is intended to be, the list can include many more factors. As this shows, the final cost of an item is almost always much more than its purchase price.

But alas, LCC is not a precise process—its calculation can become so complex that it involves factors as scary as scientific calculations using probability theory, risk assessments and statistical analysis. The degree of use depends on how precise the LCC calculation must be. This is probably one of the reasons LCC fell out of favor. However, that attitude is changing; in this time of tight budgets and the need to wring every bit of value out of each dollar spent, there’s renewed interest in LCC.

Fortunately, LCC as a concept can be applied without having to deal with much of the complexity, which is what this article seeks to do. Those who want to complete a “true” life-cycle cost analysis, the way such analyses have traditionally been done, can find ample source material on the Internet to help them and provide guidance. Those who choose this path can search some of the following terms:

  • Life-cycle cost
  • Life-cycle cost analysis
  • Life-cycle cost summary
  • Life-cycle cost calculator
  • Water distribution life-cycle cost
  • Water system life-cycle cost

However, before deciding to engage in this comprehensive LCC analysis with all its complexities, the following concepts about LCC should be understood:

LCC is not an exact science. Despite the many scientific principles and calculations that can be involved, the result itself is almost always only an estimate. That’s because the only part of the LCC equation that is well-known and clearly defined is the procurement cost. All other data is estimated or assumed, with no guarantees that one factor will behave exactly the same as another when trying to quantify things such as performance or repair histories. LCC estimates, by the very nature that they are estimated, lack hard accuracy.

A detailed LCC analysis can require costly procedures to obtain needed data. The more accurate the LCC calculation needs to be, the more cost and time involved to develop the input data.

Although LCC can call for volumes of data, typically only limited data will exist.

LCC for a given item that comes from different sources, such as from a seller versus an end user, can differ significantly. This is because each party has a bias when selecting or establishing the input data.

“Something” is almost always better than “nothing.”

Despite these realities, including LCC concepts in the procurement process can result in a more cost-effective purchasing decision. Even when a comprehensive analysis is not done, it is good practice to inject LCC into the discussion for no other reason than to push the various purchasing influences towards a team-like approach to the procurement process. In other words, considering only the initial cost without LCC:

  • Designers or engineers might cut back on an item’s performance variables to meet a capital budget constraint that only considers initial cost.
  • The purchasing department might focus on the lowest cost thinking as the desired goal, when in fact operating and other costs might mushroom once a less capable item is put into service.
  • The operations department might assume an item will perform at 100% of its capacity and last forever when in fact almost nothing lasts that long.
  • The maintenance department might plan an optimistic maintenance or repair program to reduce preventive maintenance costs and meet short-term management goals.

Including LCC principles in discussions and planning can push out each party’s cost horizon and encourage a more realistic assessment of potential costs over a longer period of budget years.

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