Non-Linear Time-Cost Break Even Research in Product Lifecycle

Abstract

This article describes the life cycle concept that can be used to evaluate the true cost of the product. It can help managers to understand acquisition costs versus operating and support costs. Life Cycle Costing (LCC) method can be used to evaluate alternatives being considered for either to buy a new product or repair the old product. The first step in determining the life cycle cost is to quantify the costs associated with all the alternatives. These costs should be identified as installed cost (material and labor), energy cost per year, maintenance cost per year. The second step is to forecast operating and maintenance expenses over time. The third step is to determine the present value of future operating and maintaining costs. To take into account the cost of capital, future operating and maintenance costs must be translated into their present value. There are at least three options open to a customer: it is possible to do a major overhaul, to buy a new unit, or to do nothing. Each possibility represents a kind of investment alternative, and each must therefore be well defined and assessed to show the cost impact of the decision over the item’s lifespan. The resulting analysis will furnish management with the answers needed to support a decision and to home in on the most advantageous timing. The first alternative is doing nothing. Then the customer needs to try to assess the wear and tear it will undergo in the future, look for cost factors that might have been previously overlooked. Usually this is the least attractive choice for maintenance staff and equipment operators, who would much, rather scrap the unit and buy new. The second alternative is to buy a new product. In this case there are a few typical considerations described in the article. Between “doing nothing” and “buying new,” there may be other options worth looking at taking a comparatively “minimalist” approach to maintenance as opposed to an “optimal” maintenance strategy. Maintenance costs are dominating life-cycle costs because maintenance tends to be done over a period of time, usually many years. Using exponential regression method it was calculated the time-cost break even where accumulated operational and maintenance costs reached the level in that it is better to buy a new one product having the same recourses in order to use the old product. Nonlinear timecost break even shows the life cycle period where accumulated costs are equal new product’s acquisition costs. The time-cost break even was found with the help of business program VisSim 5.0. Once these model’s calculations have been completed, the final decision is simple: choose the lowest life cycle cost. The least-cost approach can be used to evaluate a wide variety of projects and financial mechanisms. In all cases the calculation of life cycle costs will yield the most accurate indication of the products financial performance.