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Life cycle cost analysis of two types of bulbs
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04/13/2023 1College Of Electrical And Mechanical Engineering, NUST, Pakistan
Life Cycle Cost
By: Huzaifa Sajid
A Case Study Of Light Bulbs
04/13/2023College Of Electrical And Mechanical Engineering, NUST, Pakistan
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Life Cycle Costing (LCC)Life cycle costing, LCC, is the process
of economic analysis to asses the total cost of ownership of a product,
including its cost of installation, operation, maintenance, conversion,
and/or decommission.
04/13/2023College Of Electrical And Mechanical Engineering, NUST, Pakistan
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Why Use LCC?
04/13/2023College Of Electrical And Mechanical Engineering, NUST, Pakistan
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Why Use LCC?
Project Engineering
Maintenance
Engineering
Accounting Reliability Engineering
Shareholders ProductionIndustry
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Why Use LCC?• Project Engineering wants to minimize capital costs as
the only criteria
• Maintenance Engineering wants to minimize repair
hours
• Production wants to maximize uptime hours
• Reliability Engineering wants to avoid failures
• Accounting wants to maximize project net present value
• Shareholders want to increase stockholder wealth
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Why Use LCC?
LCC can be used as a management decision tool for synchronizing the divisional conflicts by focusing on facts, money, and time.
04/13/2023College Of Electrical And Mechanical Engineering, NUST, Pakistan
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Life Cycle Cost Calculation Approaches
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Deterministic Approach• An Exact Cost is Determined
Probabilistic Approach• A range of Values is determined with a specific
probability distribution.
04/13/2023College Of Electrical And Mechanical Engineering, NUST, Pakistan
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Deterministic Approach• Fixed discrete values are assigned to
various parameters and any type of uncertainties are ignored
• LCC calculated is fixed value
04/13/2023College Of Electrical And Mechanical Engineering, NUST, Pakistan
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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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Calculating the totalLife Cycle Cost
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Costs Involved• Initial Cost (Cic)• Delivery and Installation Costs (Cinst)• Energy Cost (Ce)• Operational cost (Co)• Maintenance Cost (Cm)• Downtime Costs (Cs)• Decommissioning/disposal costs (Cd)
FormulaLCC = Cic + Cinst + Ce + Co + Cm + Cs + Cd
04/13/2023College Of Electrical And Mechanical Engineering, NUST, Pakistan
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Case Study of a light bulb
04/13/2023 14
Case Study of a light bulb
College Of Electrical And Mechanical Engineering, NUST, Pakistan
•Suppose there is a company which wants to buy light bulb for one of its offices. And they want the bulb to work for 10,000 hours.
•Now there are two possibilities for the company.•1) to buy 100 watt incandescent bulb.•2) to buy 25 watt compact fluorescent bulb.
• Now the task for the economist is to calculate the LCC of both
alternatives and decide which one is better for the company.
04/13/2023College Of Electrical And Mechanical Engineering, NUST, Pakistan
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Case Study of a light bulb
•The costs of a light bulb can be divided into two main categories
1)Initial cost2)Operational and maintenance costs
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LCC for incandescent bulbInitial cost:
Cost of one bulb: Rs 35
Life expectancy of one bulb: 1,000 hours
# of bulbs needed to burn for10,000 hours: 10
Total Payment to light the bulb for 10,000 hours: Rs 350
04/13/2023College Of Electrical And Mechanical Engineering, NUST, Pakistan
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LCC for incandescent bulb
Operational and maintenance cost:
Hours required to use one kilowatt of electricity for a 100 watt bulb: (1,000 ÷ 100) = 10 hours
kWh of electricity in 10,000 hours: (10,000 ÷ # of hours) = 1,000 kWh
Total cost of electricity used:(supposing that 1 kWh costs Rs 160): (160 x 1,000) = Rs 16,000
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LCC for compact fluorescent bulb
Initial cost:
Cost of one bulb: Rs 1500
Life expectancy of one bulb: 10,000 hours
# of bulbs needed to burn for10,000 hours: 1
Total Payment to light the bulb for 10,000 hours: Rs 1,500
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LCC for compact fluorescent bulb
Operational and maintenance cost:
Hours required to use one kilowatt of electricity for a 25 watt bulb: (1,000 ÷ 25) = 40 hours
kWh of electricity in 10,000 hours: (10,000 ÷ # of hours) = 250 kWh
Total cost of electricity used:(supposing that 1 kWh costs Rs 160): (160 x 250) = Rs 4,000
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LCC of both alternatives
LCC = initial cost + operational and maintenance cost
Alternative Initial Cost Operational and maintenance cost
LCC
Incandescent Bulb
Rs 350 Rs 16,000 Rs 16,350
Compact Fluorescent Bulb
Rs 1,500 Rs 4,000 Rs 5,500
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AnalysisIt can be seen from the calculations, that the operation and maintenance costs of the bulbs are far more that their initial costs
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AnalysisThe analysis shows:
initial cost of incandescent bulb machine is much lower.But, the long term LCC is much lower for compact
fluorescent bulb.
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Conclusion
Hence a good economist would prefer compact fluorescent bulb for his company to buy for long term use because it would prove to be more economic in
long run.
The compact fluorescent bulb is Rs 10,850 less expensive over its life than the Incandescent bulb.
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References1. http://en.wikipedia.org/wiki/Life_cycle_cost_analys
is
2. http://www.coned.com/KIDS/pdf/coned_lightbulbs.pdf
3. http://www.slideshare.net/ankurbansal177/life-cycle-cost-analysis-15005487?qid=86718d3c-0adf-4ca3-b85a-8b158d429568&v=qf1&b=&from_search=4
4. http://www.slideshare.net/nirjhar_jgec/life-cycle-cost-analysis?qid=86718d3c-0adf-4ca3-b85a-8b158d429568&v=qf1&b=&from_search=1