Life Cycle Costing
Life Cycle Cost is defined in the American Water Works Association (AWWA) Asset Management Definitions Guidebook as “A methodology that provides an estimate of the total capital, operating, and maintenance costs of an asset over its operating life. Relevant costs include planning, design, acquisition, installation, maintenance, rehabilitation, financing, retirement/ decommissioning/ disposal and any other costs directly attributable to operating or using an Asset.”
Life Cycle Costing is where strategic asset management – making decisions about the collective set of assets – meets managing assets – making individual decisions about each asset. Both aspects are important to a well-run, efficient, and effective system, and it is important to understand the difference between them. This component of Asset Management requires strategically managing the entire system while also considering the most effective and efficient management for each individual asset as it proceeds through its life. It is critically important during this component of asset management to examine the overall life of the asset and the costs associated with each part of that asset’s life. It is also important to understand the assets’ role as a part of the larger processes and the treatment process in its entirety.
Optimal asset Life Cycle Costing requires the use of historical data such as condition, performance, maintenance, risk, and cost. Therefore, data must be collected and utilized to drive the decision making of the system. Think about where existing data can be found and where future records should be kept.
The phases of an asset’s life cycle include all the decisions or expenditures that are made related to the asset. Therefore, it is important to recognize that an asset’s life starts long before it is put into operation. There are phases in the life of an asset. These will be explained further in subsequent chapters.
Life Cycle Phases
- Planning
- Design
- Construction/Installation
- Operation & Maintenance
- Repair, Rehabilitate, Replace
- Decommission/Disposal
Robust Life Cycle Costing strategies take time to develop. These strategies include:
- Collecting data and information about all assets
- Consider the goals of existing long-term plans, such as Capital Improvement Plans, or developing new long-term plans
- Establishing Level of Service goals
- Build cost analyses for repair, rehab, and replacement for both gray and green infrastructure
Life Cycle Costing allows the system to think about assets individually and collectively. With the data and knowledge gained through the previous core components of asset management, systems can determine the best strategy for the assets, both individually and collectively, to meet the desired Level of Service at the optimal Life Cycle Cost.
Green Infrastructure is in the early phases of tracking data to enable a robust Life Cycle Costing analysis. It might not be possible at the beginning of implementing a green/gray (or just green) asset management program to implement full Life Cycle Costing strategies, but there are opportunities to begin the process of improving Life Cycle Costing practices right away. Over time, as green infrastructure practice matures, it will become easier to implement Life Cycle Costing strategies. The details will come as the infrastructure ages and grows.
Photo: IV Produkt
The importance of life cycle costs – Kevin Campanella, P.E., Assistant Director Asset Management, Department of Public Utilities, City of Columbus, OH