Why life cycle costing is important

CAPEX procurance is frequently decided on its First cost or Purchase cost. It is the chief standard when doing picks between different systems. However, it is possible to show that a lower initial investing can turn out to be more dearly-won from the whole life-cycle point of view.

With life-cycle cost ( LCC ) computations, it is possible to acquire better overview of the entire cost.

UPS is a Critical Equipment for a Data Center which is the bosom of any IT Company. LC costs of two possible options of UPS system were analyzed based on its acquisition & A ; Prolonging Cost in this case-study. The survey touches assorted Aspects of Costing like Fixed Costing, Recuring Cost, Overhead Distributions, Process Costing, NPV etc.


LCC are summing ups of cost estimations from origin to disposal for both equipment and undertakings as determined by an analytical survey and estimation of entire costs experienced in one-year clip increases during the undertaking life with consideration for the clip value of money

It can besides be defined as ;

Life rhythm cost is the entire cost of ownership of machinery and equipment, including its cost of acquisition, operation, care, transition, and/or decommission

LCC is an economic theoretical account over the undertaking life span

LCC is a planning technique

LCC can be used as a direction determination devising technique, a determination doing tool and a doctrine

Why is it of import?

The seeable costs of any purchase represent merely a little proportion of the entire cost of ownership. In many sections, the duty for acquisition cost and subsequent support support are held by different countries and, accordingly, there is small or no inducement to use the rules of LCC to buying policy. Therefore, the application of LCC does hold a direction deduction because buying units are improbable to use the asperities of LCC analysis unless they see the benefit ensuing from their attempts.

There are 4 major benefits of LCC analysis:

aˆ? Evaluation of viing options in buying

aˆ? Improved consciousness of entire costs

aˆ? More accurate prediction of cost profiles

aˆ? Performance tradeoff against cost.

Option Evaluation:

LCC techniques allow rating of viing proposals on the footing of through life costs. LCC analysis is relevant to most service contracts and equipment buying determinations.

Improved Awareness:

Application of LCC techniques provides direction with an improved consciousness of the factors that drive cost and the resources required by the purchase. It is of import that the cost drivers are identified so that most direction attempt is applied to the most cost effectual countries of the purchase.

Improved Prediction:

The application of LCC techniques allows the full cost associated with a procurance to be estimated more accurately. It leads to improved determination doing at all degrees, for illustration major investing determinations, or the constitution of cost effectual support policies. Additionally, LCC analysis allows more accurate prediction of future outgo to be applied to long-run costing appraisals.

Performance Trade-off Against Cost:

In buying determinations cost is non the lone factor to be considered when measuring the options. There are other factors such as the overall tantrum against the demand and the quality of the goods and the degrees of service to be provided.

Advantages/ Disadvantages of Life Cycle Cost Analysis ( LCCA )

Advantages of LCCA:

Helps you compare undertakings “ apples to apples ” financially even if they have different timing and magnitude of costs and nest eggs.

Provides you with a more complete fiscal image by sing first cost, and all costs and benefits over the full life-time of the undertaking.

Enables you to compare different combinations of steps and take the 1 that will maximise your nest eggs and fiscal return.

Allows you to show the fiscal benefits of your proposal in footings used by your CFO – for illustration, net nowadays value ( NPV ) , internal rate of return ( IRR ) , and hard currency flows.

Reduces your investing hazard by projecting a more complete image of the hereafter.

Disadvantages of LCCA:

Is harder to larn and use.

Geting input informations can be disputing.


The cost of ownership of an plus or service is incurred throughout its whole life and does non all occur at the point of acquisition. The Figure gives an illustration of a spend profile demoing how the costs vary with clip. In some cases the disposal cost will be negative because the point will hold a resale value whilst for other procurances the disposal, expiration or replacing cost is highly high and must be taken into history at the planning phase.

aˆ? Acquisition costs are those incurred between the determination to continue with the procurance and the entry of the goods or services to operational usage

aˆ? Operational costs are those incurred during the operational life of the plus or service

aˆ? End life costs are those associated with the disposal, expiration or replacing of the plus or service. In the instance of assets, disposal cost can be negative because the plus has a resale value.

A buying determination usually commits the user to over 95 per cent of the through-life costs. There is really small range to alter the cost of ownership after the point has been delivered.

The Procedure

LCC involves placing the person costs associating to the procurance of the merchandise or service. These can be either “ one-off ” or “ repeating ” costs. It is of import to appreciate the difference between these cost groupings because one-off costs are done for once the acquisition is made whereas repeating costs are clip dependent and go on to be incurred throughout the life of the merchandise or service.

Examples of one-off costs include:

aˆ? Procurement

aˆ? Implementation and credence

aˆ? Initial preparation

aˆ? Documentation

aˆ? Facilities

aˆ? Passage from incumbent provider ( s )

aˆ? Changes to concern procedures

aˆ? Withdrawal from service and disposal

Examples of repeating costs include:

aˆ? Retraining

aˆ? Operating costs

aˆ? Service charges

aˆ? Contract and provider direction costs

aˆ? Changing volumes

aˆ? Cost of alterations

aˆ? Downtime/non-availability

aˆ? Maintenance and fix

aˆ? Transportation and managing

The Methodology of LCC

LCC is based on the premiss that to get at meaningful buying determinations full history must be taken of each available option. All important outgo of resources which is likely to originate as a consequence of any determination must be addressed. Explicit consideration must be given to all relevant costs for each of the options from initial consideration through to disposal.

The degree edification of LCC will change harmonizing to the complexness of the goods or services to be procured.

The undermentioned cardinal constructs are common to all applications of LCC:

aˆ? Cost dislocation construction

aˆ? Cost estimating

aˆ? Discounting

aˆ? Inflation

Cost dislocation construction ( CBS )

CBS is cardinal to LCC analysis. It will change in complexness depending on the buying determination. Its purpose is to place all the relevant cost elements and it must hold good defined boundaries to avoid skip or duplicate. Whatever the complexness any CBS should hold the undermentioned basic features:

aˆ? It must include all cost elements that are relevant to the option.

aˆ? Each cost component must be good defined for better apprehension.

aˆ? Each cost component should be identifiable

aˆ? The cost dislocation should be structured to let analysis of specific countries.

aˆ? The CBS should be designed to let different degrees of informations within assorted cost classs.

Cost Estimating

Having produced a CBS, it is necessary to cipher the costs of each class. These are determined by one of the undermentioned methods:

aˆ? Known factors or rates: are inputs to the LCC analysis which have a known truth.

aˆ? Cost gauging relationships ( CERs ) : are derived from historical or empirical informations.

aˆ? Expert sentiment: it is frequently the lone method available when existent informations is inaccessible.


Inflation for all costs is about equal, it is normal pattern to except rising prices effects when set abouting LCC analysis.

However, if the analysis is gauging the costs of two really different trade goods with differing rising prices rates, for illustration oil monetary value and man-hour rates, so rising prices would hold to be considered.


SPB is how long it will take for cumulative energy nest eggs and other benefits to be or “ payback ” your initial investing. For comparatively less expensive, simpler undertakings and steps, ciphering the simple payback ( SPB ) can be adequate to do a sound determination.

Advantages of Simple Payback:

A simple manner to test comparatively low-priced steps based on payback ( or return on investing ( ROI )

Easier to pass on to a non-technical audience

Disadvantages of Simple Payback:

You ca n’t compare complex undertakings and steps where costs and nest eggs vary in both magnitude and timing ( e.g. a distilling boiler and a standard boiler ) .

It does non account for ( 1 ) care, involvement on loans, and disposal costs ; ( 2 ) clip value of money, and ( 3 ) volatility of public-service corporation costs.

It can really do economically sound betterments and undertaking efficiency look economically unviable.

The figure above compares the nest eggs for a little and a big energy-efficiency undertaking both with 20-year lives.

The little undertaking costs $ 200,000 and saves $ 100,000 yearly ( biennial simple payback ) for five old ages before an extra investing of $ 200,000 is needed.

The big undertaking costs $ 700,000 and saves $ 184,000 yearly ( 3.8-year simple payback ) for 20 old ages, with replacing costs of $ 200,000 every five old ages.

Which is a better investing & A ; more cost-efficient?

Based on simple payback, the smaller undertaking looks better. The larger undertaking generates significantly more nest eggs but the nest eggs are in the hereafter. Is it worth the investing?

Life-cycle analysis can transform these future nest eggs into today ‘s dollars utilizing the construct of “ clip value of money. ”

Sing the 3 % rising prices rate, the smaller undertaking saves merely $ 550,000 in today ‘s dollars, while the

big undertaking saves $ 1,400,000! Would you go through up $ 850,000?

Life Cycle Costing: UPS for Data Centers


What is UPS?

An uninterruptible power supply, besides uninterruptible power beginning, is an electrical setup that provides exigency power to a burden when the input power beginning, typically the public-service corporation brinies, fails.

A UPS differs from an subsidiary or exigency power system or standby generator in that it will supply instantaneous or near-instantaneous protection from input power breaks by agencies of one or more affiliated batteries and associated electronic circuitry for low power users, and or by agencies of Diesel generators and flywheels for high power users.

The on-battery runtime of most uninterruptible power beginnings is comparatively short 5-15 proceedingss being typical for smaller units-but sufficient to let clip to convey an subsidiary power beginning on line, or to decently close down the protected equipment.

Typical UPS ( Offline / Stand by UPS )

The Offline / Standby UPS ( SPS ) offers merely the most basic characteristics, supplying rush protection and battery backup. With this type of UPS, a user ‘s equipment is usually connected straight to incoming public-service corporation power with the same electromotive force transient clamping devices used in a common rush protected stopper strip connected across the power line.

Typical UPS ( Online )

Online ( “ True ” ) UPS

The online UPS, sometimes called a true UPS, A is the best type you can purchase. Paradoxically, it is both really similar to, and wholly opposite to, the least-expensive type, the standby UPS. It is really similar to it in that it has the same two power beginnings, and a transportation switch that selects between them. It is the exact antonym from the standby UPS because it has reversed its beginnings: in the online UPS the primary power beginning is the UPS ‘s battery, and public-service corporation power is the secondary power beginning!

Undertaking Definition:

This undertaking will analyze two scenarios:

2 ten 250 kVA + 1 x 60 KVA UPS with 30 proceedingss of runtime

1 ten 400 kVA + 2 x 80 KVA UPS with 30 proceedingss of runtime.

The system design life is 10 old ages as per the Manufacturers Datasheets.

Both UPS Alternatives will be compared in three stairss based on the undermentioned Undertaking Structure.

The information indicates that purchase cost comparings entirely are deficient forecasters of lifecycle cost and

that outside and variable costs must be examined.

LCC Working

Life Expectancy

The life anticipation varies with UPS type. Table 1 shows the UPS life-time based upon experience at

Ralph waldo emersons Network Power and ensuing from many old ages of UPS installings. These values will be used in the lifecycle costs.

Measure 1 – Acquisition Costss

In this measure the costs associated with the UPS purchase cost, and other points or services specifically

related to the UPS. Tables 2 and 3 merely history for the UPS System Cost. The tabular arraies in Step 2 history for

UPS substructure costs and adjusted lifecycle costs.

Acquisition Costss

Research & A ; Development Cost & lt ; Not considered as it is Common for both Variants & gt ;

Non Recurring Investment Cost.

Recuring Investing Cost.

Entire UPS System Cost: INR 6,806,209

Table 2 indicates that a UPS solution for the Life clip period includes ;

Non Recuring Cost: Purchase Cost.

Non Recuring Cost: Installation Cost:

Recuring Cost: Annual Care costs.

Recuring Cost: Battery Replacement cost every 3 old ages.

Recuring Cost: Monitoring Cost.

Table 3 indicates that a UPS solution for the Life clip period includes ;

Non Recuring Cost: Purchase Cost.

Non Recuring Cost: Installation Cost:

Recuring Cost: Annual Care costs.

Recuring Cost: Battery Replacement cost every 3 old ages.

Recuring Cost: Monitoring Cost.

Measure 2 – Sustaining Cost

In add-on to the costs clearly associated with the purchase of constituents and services for the UPS

system, there are a figure of installation substructure costs that are non ever recognized as a cost

associate with the UPS system. These costs are estimated in Tables 4 and 5, and an adjusted lifecycle

cost including the UPS system costs and the installations costs is computed.

Labour, Material & A ; Overheads.

Replacement & A ; Renewal Cost ( including Transportation )

System Modification Cost.

Documentation Cost.

Labour, Material & A ; Operating expenses: would be Nil as ;

Care Order is released to the Vendor.

Is already covered under Acquisition Cost.

Replacement & A ; Renewal Cost ( including transit ) .

UPS system is by and large non prone to Frequent Breakdowns as it has to be designed for Uninterrupted Power Supply. Major Component Considered for Break Down are ;

Transformer Failure Cost:

Transformer in the UPS is the Heart of UPS system and a Breakdown in a Transformer would take to complete system Shutdown. However the Failure Rate is really Rare 7-8 Old ages.

For Calculations Purpose we taking the undermentioned premises ;

Transformer Failure Rate: 7.5 Old ages

Capacitor/Controller Failure Rate: 3.5 Old ages.

PCB is non considered as the Cost is excessively low for Consideration.

Cost of Transportation system: Bureau of intelligence and research 6000

Production Loss: INR 750,000 Per Hr.

Administrator Man hr Rate: Bureau of intelligence and research 1000.

Transformer Failure Cost Working

Cost Incurred:

1 / ( failure Rate ) * No. of Failure * { ( Cost of Component + Transportation Cost ) + ( Production Loss ) + ( Man hr consumed ) }

For UPS 1: Transformer Failure Cost: INR 2.28L per Year

For UPS 2: Transformer Failure Cost: INR 2.31L per Year.

Capacitor / Controller Failure Cost Working

Cost Incurred:

1 / ( failure Rate ) * No. of Failure * { ( Cost of Component + Transportation Cost ) + ( Production Loss ) + ( Man hr consumed ) }

For UPS 1: Failure Cost: INR 8.84L per Year

For UPS 2: Failure Cost: INR 8.86L per Year.

System Modification cost. : would be NIL as ;

No Modification is involved during its span of 8 Old ages.

Documentation Cost.

No Documentation Cost, as all necessary Permission/PO etc has been covered in the Acquisition Cost.

Infrastructure Cost by and large comprises of the undermentioned Cost

Facility Usages Cost

Operation Cost

On Traveling preparation Cost

Technical Data Management Cost

Space Usage Cost ( Rent )

Disposal Cost by and large comprises of the undermentioned Cost

These are Lump amount cost applicable on the last twelvemonth.

License from STPI for Disposal ( de-bonding ) aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦INR 35000

Legal Cost / Visits for Disposal from Chartered Engineeraˆ¦aˆ¦aˆ¦INR 45000

Wrecking & A ; Disposal Costaˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦INR 65000

Part 3 – Adaptability

In this measure we cover the costs that are frequently taken for granted or non considered when put ining a UPS solution. These costs vary dramatically and the value must be estimated on a individual footing depending on the fortunes of the installing. A stiff design that can non accommodate to altering demands creates an “ Adaptability Penalty ” that should be understood and considered when comparing the life rhythm costs of alternate UPS engineerings for a given installing.

Speed of Deployment: An engineered design, by nature takes a long clip to implement. A modular

adaptable UPS solution is easier to plan and implement, with less hazard to detain. This clip to execution may hold big cost in certain fortunes.

If there is a deadline driven by unanticipated fortunes such as an temblor, hurricane, or a terrorist onslaught.

If there is a possibility that the system must be moved prior to its expected life-time.

Standard evaluation UPS system which is pre-tested can be wheeled into standard office infinite and operational in hours whereas UPS 2 which is Non-Standard system design, specification, fiction, and installing can take months. In some instances, this clip difference is unimportant and no value can be assigned. In other instances, the cost of clip may be Lakhs of Rupees per hebdomad. The value of clip must be assessed on a caseby-case footing.

Comparing Supply and Demand: A stiff design is hard to alter after installing and is usually built

out to its ultimate program constellation up-front. The program value is frequently unknown as it requires finding the power demand old ages in progress. Since under sizing a stiff design is non acceptable, this means that the design constellation of the system must be larger than the mean expected value in order to guarantee that the system can run into the high-side estimations. Pull offing hazard in this manner is portion of good determination doing given the options available, but the consequence is that the mean informations centre and web room spends most of its life loaded to a little fraction of its design value.

The mean informations centre or web room has its UPS substructure oversized to 4X of its required UPS capacity. This means that the lifecycle cost of the mean UPS system is 4 times what is needed. In return for this big cost the system has a really long UPS tally clip and has the ability to accept a really big addition in burden.

Commercially available Standard UPS Modules ( 250kVA, 60 kVA, 80 kVA ) systems can be transported merely via truck and normal lifts, wheeled into unimproved infinite, connected to a DC coach in proceedingss and run into all the demand necessary to guarantee version to altering UPS demands.

In contrast, Non-Standard UPS systems ( 400 kVA ) require long scope up-front planning including specialised physical infinite, Cranes/Service Lifts, airing, safety planning, and technology. The costs associated with incrementally spread outing systems are so big that it is usually less expensive to merely construct out the full system upfront.


Though the Acquisition Cost of UPS 2 ( 1 x 400 kVA+ 2×80 kVA, 30-minute solution ) is lower the life rhythm cost of the system is much higher than UPS 1 ( 2 x 250 kVA+ 1×60 kVA, 30-minute solution ) .


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