Life Cycle Cost - a Tool for Lean Plant Maintenance

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Use this form to compute the Life Cycle Cost (LCC) for different choices of equipment. Exchange the default values in the form below. Fill in the investment cost and estimate the maintenance and energy cost per year.

Company Name
Investment, including installation cost

Estimated maintenance cost per year

Estimated energy cost per year
Net discount rate¹ (percent)
Years of operation for the equipment
Equipment value final year

¹ Expected inflation subtracted from nominal investment rate, use the default value or ask your financial officer for advice

Use in Maintentance Management

The Life Cycle Cost is calculated using the formula:

LCC = Capital Cost + Present worth of Maintenance and Energy Cost  - Present worth of Salvage value

The capital cost of a project includes the initial capital expense for equipment, the system design, engineering, and installation. This cost is always considered as a single payment occurring in the initial year of the project, regardless of how the project is financed.

Maintenance is the sum of all yearly operation and maintenance costs. Fuel or equipment replacement costs are not included. Costs include such items as an operator's salary, inspections, insurance, property tax, and all scheduled maintenance.

The energy cost of a system is the sum of the yearly fuel cost.

The salvage value (S) of a system is its net worth in the final year of the life-cycle period. It is common practice to assign a salvage value of 20 percent of original cost for mechanical equipment that can be moved.

By Oskar Olofsson


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