Life cycle costing (LCC)

Life cycle costing (LCC)

Stainless steel is sometimes considered to be an expensive material. However, experience has shown that using a corrosion resistant material in order to avoid future maintenance, downtime and replacement costs can produce economic benefits which far outweigh higher initial material costs.

Life cycle costing (LCC) quantifies all the costs - initial and ongoing - associated with a project or installation. It uses the standard accountancy principle of discounted cash flow to reduce all those costs to present day values. This allows a realistic comparison to be made of the options available and the potential long term benefits of using stainless steel to be assessed against other material selections.

The present day value represent the amount of money which would have to be invested today in order to meet all the future operating costs - including running costs, maintenance, replacement and production lost through downtime. These are added to the initial costs to give the total LCC:

 

 

where

    AC = initial materials acquisition costs
    IC = initial fabrication and installation costs
    N = desired service life of project in years
    i = discount rate (calculated from interest and inflation rates)
    OC = operating and maintenance costs in year n
    LP = lost production and downtime costs in year n
    RC = replacement costs in year n

Once the cost data have been gathered, the calculation of the life cycle cost is straightforward. Software packages are available which prompt the user to collect the relevant data, carry out the calculation and allow different options to be compared easily.

Example (see reference "Applications for stainless steel in the water industry")
Galvanised carbon steel and Type 316 stainless steel were both candidate materials for ductwork to remove odorous fumes in a sewage inlet works. The galvanised steel required a multi-stage site-applied painted coating whereas the stainless steel could be installed in a single operation. The galvanised steel was expected to need maintenance every 5 years, and replacement after 15 years. The stainless steel equipment was designed for a 30 year service life, with maintenance every 10 years. A 10% interest rate and 5% inflation rate were assumed, giving a discount rate of 4.76%.

 

 

Not only was the stainless steel option only slightly more expensive initially (because of the lower installation cost) but it showed a distinct life cycle cost advantage following the anticipated replacement of the galvanised steel plant after 15 years (see graph). The stainless steel option was chosen (see picture).

 

 

 Further information on Life Cycle Costing can be found on the ISSF Website.

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