Factors Affecting Life Cycle Cost And Causal Loop Diagrams

Research the literature on life cycle cost to determine the factors that affect the cost, and the influences these factors have on each other. You will also read the sections on Causal Loop Diagrams (CLDs) in the relevant Canvas Module. You will then construct CLDs that indicate the influences that these factors have on the LCC. In particular, the assignment tasks are:

1. Research the literature on LCC to determine the factors that affect LCC. You may start with the material on LCC in the Systems Analysis module in Canvas, but you should further research the literature in more detail. Specific systems may have factors that may be unique to them. You are to identify the ones common to most systems.

2. Determine how these factors affect the life cycle cost, and how they affect each other.

3. Read the material pertaining to CLDs as indicated in the relevant Canvas module.

4. Construct a detailed CLD that conveys the factors, their interrelationships and their effect on the LCC. You may find it helpful to begin with a high level CLD and then decomposing it to lower levels.

5. Select a system that you are familiar with. For this system, create a separate CLD that indicates the relationship of LCC with the factors pertaining to this system. Identify the type of data you will need to carry out an LCC analysis for this system.

6. There is a tendency to buy the cheapest system that will fulfil a particular need. What are some of the consequences that may result from this? If you had a client that was considering doing this then, in the light of your findings, under what circumstances would you recommend getting the cheapest system, and under which ones would you recommend otherwise? Your responses to this part must be justified by your findings above.

Literature on Life Cycle Costing

This research ensures to discuss about the Life Cycle Costing (LCC) and determines the factors that affects LCC. Further, a detailed CLD will be constructed which conveys the factors, its interrelationship and effect on the LCC. Finally, recommending a cheapest system which can fulfill the specific need will be presented and justified.

It is a general practice that a system with cheapest purchase price is always opted. This results in costing more at each life cycle phases of a system. Thus, the system whose cost price is cheap can have extremely high cost in its life. Hence, it is better to take decision based on the life cycle cost of a system, instead of only its purchase price. The steps involved in Life Cycle Cost (LLC) are as follows- Estimating system useful life; estimating all the associated life cycle cost along with operational and maintenance cost; estimating the system’s final salvage value; adjusting the system cost and salvage value; determining the present value (PV); and adding system acquisition cost for maintaining LCC. Therefore, LCC analysis refers to a management tool which supports the organizations to decrease the waste and increase energy efficiency, of various systems (Pump Life Cycle Costs: A Guide to LCC Analysis For Pumping Systems, 2000).

According to (Efficiency and Life-Cycle-Cost Calculation, 2007), it is understood that most of the owners are aware about total cost of ownership. For instance after a car or any home appliances are purchased, they know that along with the purchase price, the other costs like maintenance cost, taxes, repair cost and energy are also involved. Similarly, for running some systems, there is a need of electricity too, which is also another factor.

As per (Birajdar and Pimplikar, 2016), the authors work on analyzing the LCC in construction for sustainable building. Here, the major factors that affect LCC are determined. The determined factors include construction technology, cost of the building materials and the local conditions.

It is stated in (Identifying life cycle cost is key for maintenance, 2017), that while the project managers and the policy-makers take funding decisions of a project in a constrained budget, despite their tempting towards the short-term, it is necessary to think about the long-term. Because it is more beneficial. Thus, they must strategically think about the system’s operation and maintenance.

Looking all the above literature reviews, it is right to state that, Total Purchase Price, Installation Costs, maintenance cost and energy efficiency are the factors that must to be considered while calculating LCC. Hence, budgetary saving is necessary.  Whereas, while considering the Costs to include, the LCC includes the unpredictability elements and their costs in future, where while defining these assumptions, data availability and reliability are considered as essential factors. The analysis could be done depending on the historical data or depending on the detailed data which is derived from the producers’ specifications and comparable cost-in-use data (Hill, 2016).

The factors that have an impact of LCC includes (Keith Mobley, 2003),

1. Production
2. Maintenance
3. Procurement
4. Support functions and
5. Management

The period (age) analysis is also a significant factor for determining the operational and maintenance costs which must be considered. The result will be beneficial as it decreases the energy and consumption of resources in the operational life of the product which is higher, because it extends for a long period. Generally, the maintenance costs increases as the product ages. However simple the product or a system is despite the cost for maintenance and repair is irrelevant, the period of analysis is highly significant to make LCC comparison. The frequency of replacing the product, its energy consumption will affect its cost, particularly over a long period. When any product that is inexpensive is replaced frequently might cost more over the long term when compared to a product that is of higher price and it lasts for a longer period. This must be considered while determining over which period of time a life-cycle cost comparison is to be made (Hill, 2016).

Factors affecting LCC

Causal Loop Diagrams (CLD) is a framework which shows the relationship between things, or in other words, to see the patterns of change instead of any static figure. They are used for representing the cause-effect relationships among the system variables and the depicting feedback loops. CLD supports to achieve the following:

1. To understand the issues and behaviour of the system.
2. For capturing the hypotheses of the dynamic behaviour.
3. For modelling a structural feedback.

Each causal loop diagram has four basic elements, including variables, links, link polarity and feedback loops.

Variable is referred as a condition, situation, action or a decision which could influence, or be influenced by the other variables.

The links or arrow denotes a causal linking between a couple of variables. Variable at the tail of arrow shows a causal or independent variable. Variable at the head of arrow shows an affected or dependent variable. 

If two variables move in the same direction, the polarity of the link is positive. If they move in opposite directions, the polarity of the link is negative. The link polarity provides the nature of the causal (influential) connection: 

Based on mathematics, if there is a positive link between two variables, this derivative is positive. If there is a negative link between two variables, this derivative is negative. 

For example, if birth increases, this results in increased population. Thus, the polarity of this link will be positive. Whereas, if the death increases, this results in decreased population. Thus, the polarity of the link between deaths and population will be negative. 

Thinking in terms of “cause and effect” is not enough. It is required to think about feedback.

Causal feedback loops.png 

This lets to improve the capacity, such a variable is affected by profit, and can affect the quality.

Figure: CLD representing their relationship with the factors and effect on LCC (Iseesystems.com, 2018) (Thwink.org, 2018)

It is observed that instead of purchase cost, the LCC of a system must be considered. On the other hand, consider the period (age) of analysis, as it evaluates the operational and maintenance costs. Each of the factors are essential for LCC, so ensure to calculate them.

Conclusion

This research represents and discusses about Life Cycle Costing. It also determines the factors that can have impact on LCC. A detailed CLD is constructed for conveying the factors, its interrelationship and effect on LCC. At last, a cheapest system is recommended which can fulfill the specific need, with appropriate justification. Therefore, it is observed that instead of purchase cost, the LCC of a system must be considered.

References

Birajdar, S. and Pimplikar, S. (2016). Study of Sustainable Building Based On Life Cycle Cost. International Research Journal of Engineering And Technology (IRJET), 3(6).

Efficiency and Life-Cycle-Cost Calculation. (2007). Michael Smith Engineers.

Hill, K. (2016). Life-cycle Costing. SIGMA Programme.

Identifying life cycle cost is key for maintenance. (2017). World Pumps, 2017(12), pp.30-35.

Keith Mobley, c. (2003). 5 factors affecting life cycle costs. [online] Plant Services. Available at: https://www.plantservices.com/articles/2003/112/ [Accessed 24 Aug. 2018].

Iseesystems.com. (2018). Overview: Causal Loop Diagrams (CLDs). [online] Available at: https://www.iseesystems.com/resources/help/v1-4/Content/03-BuildingModels/Causal_Loop_Diagrams/Overview_Causal_Loop_Diagrams.htm [Accessed 24 Aug. 2018].

Pump Life Cycle Costs: A Guide to LCC Analysis For Pumping Systems. (2000). Office of Industrial Technologies Energy Efficiency and Renewable Energy U.S. Department of Energy.

Thwink.org. (2018). Causal Loop Diagram - Tool/Concept/Definition. [online] Available at: https://www.thwink.org/sustain/glossary/CausalLoopDiagram.htm [Accessed 24 Aug. 2018].