Environmental Life Cycle Costing - Chapter 6 pptx

The only exception regards the names for the different types of LCC studies, which are, for the sake of consistency throughout the book, adapted to the definitions provided in Chapter 1.

6

Cycle Costing Studies

Andreas Ciroth, Karli Verghese,

and Christian Trescher

Summary

A survey was distributed and statistically analyzed, at the outset of the tions of the SETAC-Europe working group, with the aim of identifying current practices in regard to LCC The characterizations that were made possible based

delibera-on the analysis presented herein were, therefore, the roots of the ultimate 3 types

of LCC that are distinguished in this book The 33 cases, the majority of which were performed in 2003 or later, were statistically examined in terms of their goal and scope as well as the duration of the costing, the type of sector, and the functional unit The results are distinguished according to the geographical loca-tion of the study or production site The means by which the various investigators examined uncertainty are discussed

different goal and scope settings, and

of LCC that are described herein and defined in Chapter 1

It should be emphasized that the aim of this chapter is not to build a collection

of cases, but rather to provide an analysis of life cycle costing studies undertaken for different use patterns, in addition to identifying possible flaws and improvement

potentials for future application In addition, the purpose was not to speak, in a resentative manner, for all case studies that have been performed, nor was it to com-prehensively sample existing studies The former would be far too ambitious for the undertaking within the working group However, the sample shall serve as a basis

rep-to formulate hypotheses, which in turn may be tested in further, more elaborated analyses Furthermore, the guidelines established in this book on LCC, partially as

a result of the aforementioned survey, have led to the selection of 7 real cases and 1 hypothetical case, as benchmarks These are presented in Chapter 7

6.2 RELATION OF THIS CHAPTER TO THE OTHER CHAPTERS

The survey was performed in 2004, and was 1 of the first activities in the LCC ing group It clearly uses a bottom-up, empirical approach (Stier 1999; Kromrey 2002), and this perspective is conserved throughout this chapter The only exception regards the names for the different types of LCC studies, which are, for the sake of consistency throughout the book, adapted to the definitions provided in Chapter 1.The survey presents case studies in aggregated form only Chapter 7 will present selected case studies in more detail In Chapter 1, the goal and scope of LCC and

work-of LCC studies are treated in a more general, nonbottom-up perspective Chapter 2

links goal and scope and important methodological choices for LCC studies

6.3 PARAMETERS AND SETTINGS OF LCC STUDIES IN PRACTICE

There are numerous means by which to structure the different parameters for LCC studies A survey form was developed (see Appendix to Chapter 6) to collect the key information from each case study The survey form follows a system analysis approach, based on the following concept When performing an LCC study, there is

an object of study as well as other elements or parameters that cause a case study to occur These, in turn, determine the result and interpretation of the case study The effect of the person or organization carrying out the study, as well as the sources of data, measurements, and finally expert judgment or panels, should all be considered The study processes the input data, based on methodological choices and other set-tings including allocation rules that “distribute” input data, as well as discount rates Ultimately the result* that is produced contains various scenarios; itemizes the costs, often in conjunction with an impact assessment; and provides specific recommen-dations, while stating all assumptions It is convenient to picture this structure in a classical box scheme (Figure 6.1)

Table 6.1 lists some possible parameters and attempts to fit them in the box scheme structure A single parameter may have relations to more than 1 of the over-arching topics (e.g., “Does the Life Cycle considered span different countries?” relates to input data, though also to the object of study, and in the end to the goal and scope)

* The term “result” may comprise quite different elements for a case study — the figure given for life cycle costs, for possibly different scenarios, being only 1 among others The interpretation based on the findings, and also decisions based on the interpretation, are other elements that could be grouped under result.

TABLE 6.1

Listing of possible parameters and settings for LCC case studies

Overarching topic “Parameter” a

Goal and scope Reasons for performing the study

Intended use of the case Intended addressees of study People Study performed by (external contractor, internal sources, or both)

Object of study Which types of branches or sectors are included?

What is the object of study?

Functional unit Time span covered by life cycle, per functional unit Input data Does the life cycle considered span different countries?

Does it integrate costs from different sources?

Quality guidelines for input data (only documented costs and prices, or also estimations of costs and prices and qualitative assessments) b

Case study “transaction” approach applied

Approach Source of approach (consultant, both consultant and client, or generic)

Approach based on other life cycle methods (e.g., LCA) Special approaches applied (simulation, prognosis, uncertainty consideration in input data, long-term data collection)

Description of different scenarios investigated, if applicable Approach of cost estimation used (price, parametric cost estimation, via functional relations, and/or other)

Discounting rate as applied Data sources and

Other Duration of study (initial motivation for performing the study, kickoff, and finish)

Work effort required to conduct the study (person-days)

Result of the case study

Costs Overall life cycle costs per functional unit as given in study

Relation of investment costs or purchasing costs to the overall life cycle costs, as given in study

Type of costs, as given in result Internal costs alone or also external costs provided in result? Which type of external costs, if applicable? c

(continued)

LCC Study Approach

Goal, Scope,

“What is Responsible for

Case Study Kickoff ”

Sensitivity consideration in result?

Other aspects Other aspects of object considered and investigated (reliability, energy

consumption, etc.) as shown in the result Life cycle Which parts of the life cycle are excluded from the result (single life cycle stages

such as production, use, maintenance, repair in use stage, recycling, and final disposal)?

Addressees Addressees of study (management; client, supplier, bank, and/or others involved

in companies’ business; and/or public or other specific audience not involved in companies’ business)

Interpretation and

implications

What was the final interpretation of the results? Was any action taken or initiated? Is there follow-up, or are there other implications as a result of the study?

a Possible realizations are specified in parentheses, if not self-evident.

b Not included in the survey.

c For a definition of internal and external costs, see Chapter 1.

6.4 SAMPLING PROCEDURE OF STUDIES FOR THE SURVEY

A survey was used to sample the population with the survey form, based on a inary version (Ciroth and Trescher 2004) as provided in the Appendix to Chapter 6 Its 3 sections correspond to the points identified in Table 6.1

prelim-The survey forms were entered into a database as received, with some entries needing to be separated and reorganized for the analysis As an example, lists of cost types considered were, additionally to the list provided, separated into Boolean fields indicating whether operational costs, production costs, disposal costs, and equip-ment and overhead costs were considered in a case study Costs provided in studies were transformed into current euros, assuming a long-term US$–euro equivalency and disregarding the time of the study

not overemphasize 1 single case For the other external cost studies, the number in the sample is small as well; thus, results for this type of case should not be overanalyzed.

6.5.1 O VERVIEW OF THE S TATISTICS

The survey comprises 33 studies, with most of the studies undertaken in 2003 The oldest study was conducted in 1984 (Figure 6.2) The majority of the cases were car-ried out in the United States and Germany, though others were from South Africa, Japan, and other European countries One study analyzes a product over different European countries (“divers,” in Figure 6.3)

Number of Studies Per Year

FIGURE 6.2 LCC case studies in the survey, per year.

LCC Case Study Countries (no of cases)

Figure 6.4 shows the share of the different LCC applications, as given in the survey:1) Conventional LCC studies, using internal costs alone (>55%)

2) Societal LCC studies, using internal and external costs (10%)

3) Environmental LCC studies, using internal costs alone, in combination with LCA (>25%)

4) Societal LCC studies, using external and internal costs, in combination with LCA (<5%)*

Some studies assume a static life cycle These were set to a life cycle duration of 0 years in Figure 6.5; the longest life cycle spans 90 years (a building).**

* The SETAC-Europe Working Group on Life Cycle Costing recommends using a societal LCC not in combination with LCA, to avoid double counting environmental impacts.

** See Chapter 2 for a discussion on steady-state versus dynamic life cycle modeling.

Use Types for Case Studies

Conventional LCC Environmental LCC Societal LCC without LCA Societal LCC with LCA

FIGURE 6.4 Different use types of LCC studies in the survey.

Duration of Life Cycle in Case Studies (years)

Industrial sectors dealt with in the case studies are shown in Table 6.2 The bers in the brackets indicate multiple cases The railway and automotive industries have high shares in the case studies analyzed.

num-As for the industrial sectors, the objects analyzed in the studies cover a broad range from domestic boilers, to pavement design, to trams, to “solid core nuclear engines” (Table 6.3)

Construction, real estate, and facility management

Domestic furnaces and boilers

Electric appliances (2)

Energy

Floor producers Heating systems Railway vehicles (7) Solid waste management Sports and leisure vehicle production Steel industry

Street building and maintaining authorities (2) Wastewater treatment

TABLE 6.3

Objects analyzed in the case studies

“An average sports floor,” maple-based flooring, PVC-based flooring, and poured urethane–based flooring r

Car, parts of a car, and complete car: DaimlerChrysler S-Class, and Ford Mondeo (front subframe system) r

“Chemical engines using liquid oxygen and aluminum powder [LOX/Al], solid core nuclear engines, r

nuclear light bulb engines, and ion engines for cis-lunar space application”

Coupling equipment for different types of train sets

Consequently, also the functional units in the case studies differ to a able extent (Table 6.4).

consider-6.5.2 C OSTS C ONSIDERED , AND N OT C ONSIDERED , IN THE C ASE S TUDIES

Table 6.5 lists examples of cost types as they were considered, or (explicitly) not considered, in the case studies

The costs, as given in the form, were tentatively classified into 4 groups:1) Production and purchase,

2) Operation and use,

3) Disposal, and

4) Equipment costs, investment costs, and overheads

TABLE 6.5

Examples of costs considered, or explicitly not considered, in the case studies

1 “Input costs” (also revenues, if negative): enhanced

renovation capital investment, site protection capital investment, special security features capital investment, HVAC [a] upgrade capital investment future (year 17), salvage capital investment future (year …)” b

Not specified

2 R&D, system installation, capital costs, and operation,

on the basis of a system breakdown structure

Disposal and hazards

3 Investment and maintenance costs, and repair in use stage “Residual value costs”

4 Focus on not only environmental costs but also financial

ones (investment, maintenance, energy, labor, and material) c

Taxes

5 Purchase/ capital costs, maintenance, operation

(electricity), and others (planning, training)

Overhead costs

a Heating, ventilating, and air conditioning.

b Note that these are citations from the forms.

c It seems that “environmental costs” are seen as external costs, while “financial costs” are internal costs; energy costs, for example, are then (also) part of the financial costs.

TABLE 6.4

Examples of functional units in the case studies

“The data center undergoing renovation is a single-story structure located in a suburban community r

The floor area of the data center is 40 000 ft 2 (3,716 m 2 ) The replacement value of the data center is

$20 million for the structure plus its contents.”

1 boiler or furnace with a specific thermal performance (e.g., hot water oil boiler with 140 000 Btu/hr r

input capacity)

1 m

r
2 of floor

Figure 6.6 shows the share of case studies that considered these different cost types

It is clearly less common to consider end-of-life costs and overhead (OH) costs The overall LC costs span from 10 euros to 100 million euros (Figure 6.8) They are nor-malized relative to the selling price of the product or functional unit, while the ratio

of LCC to selling price spans from approximately 2 to 100 Some studies consider revenues and costs, which leads to negative costs (i.e., total revenues) in 1 study Higher LC costs are typical for the “pure, internal LCC study”; see the following section Prices are most commonly used for cost estimation (Figure 6.7) Purchase (or investment) costs vary between 0% and 85% of the total LCC, as is shown in

Figure 6.9

Type of Costs Considered in Case Studies

Operation or Use Costs?

0% 20% 40% 60% 80% 100%

FIGURE 6.6 Types of costs considered in case studies.

Cost Estimation Approaches in Case Studies

FIGURE 6.7 Cost estimation approaches in case studies.

6.5.3 D ATA S OURCES AND C ALCULATION M ETHOD U SED

With respect to data sources, more than 40% of the studies claim not to use expert judgment, with most of the studies using internal and external data sources in parallel (Figure 6.10) Hand, paper, and pencil (HPP); spreadsheet software; and specialized LCC tools were each used in approximately 35% of all case studies for calculations (Figure 6.11) One should note that some LCC studies rely only on spreadsheet software and HPP

6.5.4 U NCERTAINTY AND D ISCOUNT R ATE

The discount rate in costing has, as one aim, the consideration of uncertainty about future cash flows (see Section 2.6.1) Approximately half of the studies in the survey apply a discount rate (above 0%) A rate of 0% was assumed in cases where no rate

Investment Costs to Overall LCC (%)

FIGURE 6.9 Investment costs to overall life cycle costs in case studies.

Total LCC Costs as Given in Studies (€)

Negative Cost Value

FIGURE 6.8 Total LCC costs as given in case studies.