Asset Life Cycle Management. Case Studies on Asset Life Cycle Cost Modelling

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Asset Life Cycle Management

Case Studies on

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• _The Basics

• _The Process

• _{Different Models}

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Asset Life Cycle Cost Basics

Total Cost

Time

Replacement

Life Span (Assessment Period)

Life Cycle (Asset Estimated Life)

Financial Year

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Step 1:

Define the Scope of the Analysis

Step 2:

Develop or adjust the LCC Model

Step 3:

Define Team. Collect Information

Step 4:

Populate the Model

Step 5:

Review and Optimise the Model

Step 7:

Maintain the Model

Step 6:

Decision and Implement the Solution

Life Cycle Cost Modelling Process

• Stakeholder involvement • Project plan review • Scope of analysis

• Data requirements analysis • Model selection

• Depreciation policies and rates • Governing accounting practices • Categorisation of cost contributors • Validation of the model by Accounting

• Data verification

• Audit trail for data entries • Consensus discussion • Base results demonstration • Team identification

• Responsibility allocation

• Data collection and configuration

• Reality checks • Sensitivity analysis • Variations

• Presentation to Stakeholders • Consensus

• Budget alignment and Project Team appointment • Implementation project definition and activation • Populate actual data

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Different Models

• _{Optimum Replacement Age}

• _{Repair / Replacement}

• _{Alternative Decision Making}

• _{Maintenance Strategy Selection}

• _Other Uses

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Optimum Replacement Age Models

Optimal Asset Life? Replace every Year

Life Cycle Cost

LCC 1

LCC 2

LCC 3

LCC 4

LCC X

Replace Every 2 Years Replace Every 3 Years Replace Every 4 Years Etc.

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Cost Summations across Life Span (Example)

Replacement Interval _Y0 _Y1 _Y2 _Y3 _Y4 _Y5 _Y6 _Y7 _Y8 _Y9 _Y10 _LCC Every Year 9.00 8.40 7.80 7.45 7.05 6.80 6.65 6.35 6.25 6.20 6.00 $77.95M Every 2 Years 3.20 8.40 1.00 7.45 1.35 6.80 3.65 6.35 1.60 6.20 1.95 $47.95M Every 3 Years 3.30 3.70 7.80 0.85 1.05 6.80 1.40 3.50 6.25 1.30 1.55 $37.5M Every 2 Years 3.70 4.20 4.05 7.45 0.85 1.00 1.05 6.35 3.30 1.25 1.25 $34.45M Every 6 Years 3.90 4.50 3.65 3.50 3.45 3.30 6.65 0.65 0.80 0.85 1.25 $32.5M Every 7 Years 3.90 4.50 3.65 3.50 3.60 3.75 3.90 6.35 0.50 0.70 0.85 $35.2M Every 8 Years 3.90 4.50 3.65 3.50 3.60 3.65 4.40 4.25 6.25 0.45 0.75 $38.9M Every 9 Years 3.90 4.50 3.65 3.50 3.60 3.75 4.65 3.75 3.80 6.20 0.40 $41.7M Every 4 Years 3.85 4.50 3.60 3.55 7.05 0.80 0.90 0.95 1.15 6.20 1.10 $33.65M Every 5 Years 3.90 4.50 3.65 3.45 3.50 6.80 0.70 0.85 0.95 1.20 3.05 $32.55M Every 10 Years 3.90 4.50 3.65 3.50 3.60 3.75 4.75 3.55 3.75 4.10 6.00 $45.05M

Costs [

$M]

Time

Y10

Y9

Y8

Y7

Y6

Y5

Y4

Y3

Y2

Y1

Y0

1 2 3 4 5 6 7 8 9

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Repair or Replace?

Old Truck?

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Repair / Replacement Models

Maintain or Replace? Replace After 1 Year

Life Cycle Cost

LCC 1

LCC 2

LCC 3

LCC 4

LCC X

Replace After 2 Years Replace After 3 Years Replace After 4 Years Etc.

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Cost Summations across Life Span (Example)

Replacement Year _Y0 _Y1 _Y2 _Y3 _Y4 _Y5 _Y6 _Y7 _Y8 _Y9 _Y10 _LCC Replace Y0 9.00 1.00 1.25 1.45 1.75 3.75 1.40 1.60 1.80 2.00 2.30 $27.30M Replace Y1 3.20 8.40 1.00 1.20 1.35 1.65 3.65 1.30 1.60 1.75 1.95 $27.05M Replace Y2 3.30 3.70 7.80 0.85 1.05 1.15 1.40 3.50 1.20 1.30 1.55 $26.80M Replace Y3 3.70 4.20 4.05 7.45 0.85 1.00 1.05 1.35 3.30 1.25 1.25 $29.45M Replace Y6 3.90 4.50 3.65 3.50 3.45 3.30 6.65 0.65 0.80 0.85 1.25 $32.50M Replace Y7 3.90 4.50 3.65 3.50 3.60 3.75 3.90 6.35 0.50 0.70 0.85 $35.20M Replace Y8 3.90 4.50 3.65 3.50 3.60 3.65 4.40 4.25 6.25 0.45 0.75 $38.90M Replace Y9 3.90 4.50 3.65 3.50 3.60 3.75 4.65 3.75 3.80 6.20 0.40 $41.70M Replace Y4 3.85 4.50 3.60 3.55 7.05 0.80 0.90 0.95 1.15 3.20 1.10 $30.65M Replace Y5 3.90 4.50 3.65 3.45 3.50 6.80 0.70 0.85 0.95 1.20 3.05 $32.45M Replace Y10 3.90 4.50 3.65 3.50 3.60 3.75 4.75 3.55 3.75 4.10 6.00 $45.05M

Costs [

$M]

Time

Y10

Y9

Y8

Y7

Y6

Y5

Y4

Y3

Y2

Y1

Y0

1 2 3 4 5 6 7 8 9 0 10 20 30 40 [$M] Replacement Capital Maintenance Costs Lost Productivity Disposal Process Costs

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Repair/Replace Model

-4.00 -2.00 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 Repl ace Y0 (200 6) Replac e Y1 (200 7) Repl ace Y 2 (2 008) Rep lace Y3 (200 9) Repl ace Y4 (201 0) Repl ace Y5 (201 1) Repl ace Y6 (201 2) Repl ace Y7 (201 3) Rep lace Y 8 (2 014) Repl ace Y9 (2 015) Repl ace Y 10 (201 6) Repl ace Y11 ( 2017 ) Repl ace Y 12 (2 018) Repl ace Y1 3 (2 019) Repl ace Y 14 (202 0) Rep lace Y15 (202 1) Rep lace Y16 (202 2) Repla ce Y1 7 (2 023) Repl ace Y18 (202 4) Repl ace Y 19 (2 025) Rep lace Y20 (202 6) Repl ace Y21 (2 027) Repl ace Y2 2 (2 028) Repl ace Y2 3 (2 029) Repl ace Y24 (20 30) Repl ace Y 25 (203 1) Replacement Year N e t Pr e s e n t Va lu e s [ M il li o n s ]

Current Machine Depreciation Disposal

Shutdown Lost Productivity Lost Productivity

Lump Sum Capital Lump Sum OPEX Routine Process Routine Maintenance Replacement Capital

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Alrode L9 Pasteuriser IQMS Results

0 10 20 30 40 50 60 70 80 90 100 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Month IQMS Results [%]

Pasteuriser Performance Improvement

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Cyclic fatigue cracking

Maintenance Strategy Selection

Reinforcing

Reinforcing webs

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Maintenance Strategy Selection

Risk Based Maintenance Task LCC Comparison

0 1000000 2000000 3000000 4000000 5000000 6000000 7000000 8000000 RBM: Condition Based Maintenance RBM: Usage Based Maintenance RBM: Run to failure Maintenance RBM: Design Improvement Maintenance Non-RBM Maintenance

Maintenance Types of Work

T L C C NP V [ A UD]

Alternative Risk Based Maintenance Solutions

(Mitigated Risk)

Current Risk

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Life Cycle Cost Modelling

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Life Cycle Cost Management

Time $

Life Cycle Costs

Replacement Year Scenarios

10 12 14 16 18 20 22 24 26 30

Replacement Scenario Costs

Rolling Years X?)

Assets

0 4 8 12 16 20 24 28 32 36 1 2 3 4 5 6 7 Fleet Total LCC $ $ $ $ $ $ $ $ $ $

Fleet Plan

22

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Machine Benchmarking

Cumulat

ive Costs

Usage

Target (Model)

Machine 1

Machine 2

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Modelling Software Tools

• Excel

• APT Lifespan (Woodhouse Partnership)

• AssetLife (Hansen Corporation)

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References

Standards:

• Australian Federal Income Tax Legislation • AS 15288: 2003 Systems Engineering – System Life Cycle Processes • AS/NZS 4356: Life cycle costing ‐ An application guide • Australian Accounting Standard AAS 4 Depreciation • Australian Accounting Standard AAS 116 Property, Plant and Equipment • International Financial Reporting Standards (lFRS) IAS 16 and IAS 36 Standards • Australian Government Depreciation Guidelines • Australian Master Tax Guide • TR 2009/4: Taxation Ruling ‐ Income tax: effective life of depreciating assets • GAAP (Generally Acceptable Accounting Practices) • Life cycle costing Better Practice Guide – Australian National Audit Office

Books:

• Maintenance, Replacement and Reliability, A.K.S. Jardine • Life‐Cycle Cost and Economic Analysis, Prentice‐Hall, Englewood Cliffs, NJ • Life Cycle Cost, Reliability, Maintainability, and Supportability Guidebook, Warrendale, PA • Life Cycle Costing: Techniques, Models and Applications, B. S. Dhillon • Life‐Cycle Cost and Economic Analysis, Benjamin S. Blanchard, Fabrycky, Wolter J

Websites:

• APT Lifespan: www.reliability.com.au • LCC Ware 3: www.aptools.co.uk

Asset Life Cycle Management. Case Studies on Asset Life Cycle Cost Modelling