6.2 Life Cycle Cost Components



In order to improve decisions regarding the management of assets, it is necessary to know the costs of the various components of the life cycle of an individual asset. These costs include:
  • initial cost of installation
  • operations and maintenance expenses
  • repairs costs
  • rehabilitation costs
  • disposal cost
  • legal, environmental, or social costs

LC-2
 

LC-3
 

LC-4
At the beginning of an Asset Management program, it is often difficult to find historical cost information for individual assets. Instead, information is usually in an aggregate form. The utility may know total expenditures for operations and maintenance, but not how much of that cost was spent on a particular pump or well or blower. The lack of this type of specific information makes it more difficult to determine the optimal time to replace assets. If you don't know that of the $40,000 you spent on O&M at the wastewater plant, $5,000 was spent maintaining a clarifier drive this year and an additional $3,000 the prior year on the same drive, you won't be able to see that it would be more cost effective to buy a new drive at $7,000 than continuing to maintain the old asset.

Aggregate data also makes it harder to determine the overall quality of the utility. For example, suppose maintenance costs are $70,000 per year for a water utility. It would be helpful to know if that cost is uniformly spread out between field assets (pipe, valves, meters) and plant assets (wells, treatment, storage) or whether a single asset or asset class makes up most of that cost. If costs are spread across asset classes such as the following:
  • $10,000 on pipe repair and maintenance
  • $5,000 on meter and service line replacement
  • $20,000 on well maintenance
  • $15,000 on treatment related expenses
  • $15,000 on storage tank maintenance
  • $5,000 on fire hydrant repair and replacement
The utility can see that no one asset class accounts for most of the expenditures. However, if the costs of the $70,000 are distributed in the following way:
  • $60,000 on pipe repair and maintenance
  • $5,000 on meter and service line replacement
  • $2,000 on well maintenance
  • $1,000 on treatment related expenses
  • $1,000 on storage tank maintenance
  • $1,000 on fire hydrant repair and replacement
It is clear that the bulk of the costs are related to one asset class, pipes. In this latter case, the information shows that the utility needs to spend time and effort evaluating pipe to determine why costs are so high in this area compared to the rest of the operation. Addressing pipe issues might significantly decrease the overall cost of operating and maintaining the utility. Even though total expenditures were the same in both examples, the profile of expenditures presents a very different view of what should be done to address the costs.

A deeper analysis can provide even more information about how to address operation and maintenance expenditures. If you take one particular asset class, such as water pipe, and look more closely at how the costs break down between types of pipe, more information can be obtained to aid in decision-making.

In the second example, total pipe expenditures were $60,000 and these expenditures accounted for most of the total cost of operation and maintenance. Further examination of these costs can help to determine which specific assets are driving this cost. Suppose the costs break down as follows:
  • Cast Iron pipe <12 inches $40,000
  • Cast Iron pipe >12 inches $5,000
  • PVC Pipe <12 inches $5,000
  • PVC Pipe >12 inches $2,000
  • Asbestos Cement (AC) Pipe <12 inches $7,000
  • AC Pipe >12 inches $1,000