5 factors affecting life cycle costs

Keith Mobley, contributing editor, explores life cycle cost and its effect on corporate profitability.

By Keith Mobley, contributing editor

Once upon a time, industry knew the value of a dollar and made every effort to get the maximum return on its investment. Equipment life cycle cost procurement, installation, operation, maintenance and decommissioning was clearly understood and, throughout the asset's life, efforts were focused on keeping these costs as low as possible.

Too many plants today seem to be ignoring life cycle cost and its effect on corporate profitability. Many decisions are made only on the basis of today's cost, with little or no consideration of cost during the life cycle of plant assets. This is especially true in the procurement process, where specification development almost is non-existent, little effort is made to evaluate the total cost of new equipment, and the actual purchasing decision is made solely on price. As a result, corporations can face excessively high life cycle cost. Unfortunately, few plants recognize the long-term effect of these shortsighted decisions.

Obviously, we need to embrace life cycle-based decisions about new equipment and major upgrades. But, is there anything to be done concerning our installed capacity? Can we improve day-to-day practices to minimize the negative impact of bad decisions made during the low bid procurement process? There's no way to undo the damage completely, but we can mitigate losses by changing the way we operate and maintain installed assets. These changes must occur throughout the facility.

Production

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Production practices determine the remaining life cycle cost of installed assets. Too often, these practices are diametrically opposed to minimized life cycle cost. Critical production systems run outside their proper operating envelopes. They are abused and, in many cases, destroyed by procedures that don't consider life cycle costs. To reverse these negatives, production practices need to be updated to optimize long-term reliability and capacity. These changes should include load-leveling, proper setup and adjustments, acceptable operating capacities, proper ramp/deceleration rates and adequate cleaning.

Maintenance

The next key to improved life cycle cost is proper maintenance. While maintenance can keep poorly operated assets running, it can't compensate for damage and, therefore, can't improve life cycle cost by itself.

Too many plants today seem to be ignoring life cycle cost and its effect on corporate profitability.

– Keith Mobley, contributing editor

The key components of effective maintenance include proper installation, alignment and lubrication; regular calibration and adjustments; effective inspections to detect minor deviations from optimum operating conditions; and immediate corrections of any deviations that can degrade performance levels. Maintenance shouldn't wait for breakdowns or arbitrary preventive maintenance intervals. Instead, maintenance activities must focus on tasks that extend the asset's useful life and reduce the life cycle cost. Decisions must be driven by life cycle cost, not the maintenance budget.

Procurement

Any possible negative effect that procurement might have on life cycle cost doesn't stop once the initial purchase is completed. Decisions the procurement group makes about replacement parts, production materials, as well as a myriad of support services, continue throughout the useful life of critical plant systems. Both production and maintenance are at the mercy of procurement and can't improve life cycle cost without proactive support from that plant function.

Procurement must change the way it does business. Decisions about materials and services needed to operate and maintain the plant must be made on the basis of long-term or life cycle cost. Until this becomes standard practice, the cycle of upwardly spiraling costs will continue.

Support functions

Other functions within the corporate structure also play a role in life cycle cost. For example, the way the sales function loads the plant determines whether procurement can adhere to best practices. Human resources must provide the labor and skills essential to success. The engineering function influences selection, modifications and installation.

Management

Dr. Deming said 85 percent of the factors that limit plant performance (and life cycle cost) can be attributed directly to poor management. The shortsighted policies and procedures corporate management generates can hobble the plant's ability to achieve and sustain optimal life cycle costs. These policies and procedures must change to improve costs.

Contributing Editor Keith Mobley can be reached via email at rkmobley@aol.com.

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