Life Cycle Costing as a Tool of Project Controlling in the Field of Mechanical Engineering

Master's Thesis, 2014

106 Pages, Grade: 1,3



List of Contents

List of Figures

List of Tables

List of Appendices

List of Abbreviations

1. Handling of follow-up costs of machines and plants as an increasing challenge in today’s business environment

2. Significance and conception of life cycle costing in mechanical engineering
2.1 Assumptions and differentiation of goals of life cycle costing
2.2 Phases of life cycle costing and its perspectives
2.3 Elements of costs and returns
2.4 Existing models of life cycle cost estimation and specific values of dependability
2.4.1 Presentation of life cycle cost estimation approaches
2.4.2 Definition of specific values of dependability
2.5 Selected calculation examples according to VDMA 34160:
2.5.1 Database determination and assumptions
2.5.2 Roboter as an energy cost-intensive machine
2.5.3 Bowl feeder as a maintenance and repair-cost intensive machine
2.5.4 Blasting plant as a labour-cost intensive machine
2.5.5 Summarised calculation results

3. Distortion of life cycle cost estimation due to missing standardisation and intricate follow-up cost estimation
3.1 Requirements for a standardised model
3.2 Distortion of results caused by operational costs (follow-up costs)
3.3 Influencing factors of maintenance and repair costs

4. Improvements regarding follow-up costs for an enhanced cost estimation
4.1 Adaption of presented models with special regard to follow-up costs
4.2 Consideration and influence of discounting
4.3 New approach based on theWeibullandGammadistribution for an improved life cycle cost estimation
4.4 Evaluation of the new approach
4.5 Life cycle costs as a purchase decision tool and indications for guarantee contracts
4.6 Summarised evaluation of the life cycle cost estimation concept and its impacts on practice from the operator’s perspective

5. Life cycle costs - change in paradigms


List of References


Today, the purchase decision about machines and plants is not made on initial procurement costs alone, but rather on the life cycle costs as well. There is the danger that the machine’s follow-up costs exceed the acquisition price. Therefore, the life cycle cost estimation increasingly becomes an essential tool for a cost-effective investment decision.

This thesis investigates the life cycle cost calculation of machines and plants as an investment decision tool from the operator’s perspective. After outlining the significance and conception of life cycle costing in the field of mechanical engineering, existing cost estimation models and approaches, as well as specific values of dependability, are presented. Therein, especially the problematic nature of operation cost (follow-up cost) estimation, caused mainly by maintenance and repair costs, is discussed. In order to improve the life cycle cost estimation, along with some proposals for enhancing the existing methods, a new approach based on the Weibull and Gamma distribution is provided with focus on failure related repair costs. In this context, the aspects of standardisation, uncertainty and discounting are carved out. Due to the fact that operators increasingly demand for cost guarantee contracts, contract design recommendations are facilitated. Finally, the life cycle cost concept as an operator’s purchase decision tool about machines and plants is assessed and summarised in regard to its practicality.

List of Figures

Figure 1: Minimized life cycle costs as a function of the machine's temporal reliability

Figure 2: Phases of life cycle costing and their parameters (VDMA 34160:2006)

Figure 3: Manufacturer's perspective

Figure 4: Operator‘s perspective

Figure 5: Cost cube of life cycle costing

Figure 6: Machine configuration - Blasting plant

Figure 7: Generic life cycle cost model according to VDMA 34160:

Figure 8: VDMA 34160:2006 configuration Excel worksheet

Figure 9: Maintenance - overview

Figure 10: Interdependency of MTBF and MTTR..

Figure 11: Structure of a serial system

Figure 12: Bath tub

Figure 13: Density function f(t)..

Figure 14: Higher availability due to optimized maintenance works

List of Tables

Table 1: Load spectrum data according to VDMA 34160:

Table 2: Elements of costs and returns in respect to the life cycle phases

Table 3: Time model of VDI norm 3423:

Table 4: Weibull distribution formulas

Table 5: Calculation results: Roboter

Table 6: Calculation results: Bowl feeder

Table 7: Calculation results: Blasting plant

Table 8: Summarised results of calculation examples

Table 9: Calculation of factor value q.

Table 10: Selection of the degree of standardisation

Table 11: Differences in operating costs in the calculation examples

Table 12: Key characteristics of cost calculation approaches

Table 13: Impact of discounting on forecasted life cycle costs

Table 14: Strength of discounting

Table 15: Determination methods of failure rates and reliability

Table 16: Variables of the unscheduled repair costs (IH3)

Table 17: Specific data of guarantee contracts

Table 18: Elements of costs and returns in guarantee contracts

List of Appendices

Appendix A: Cost elements and factors of the VDMA standard sheet 34160:

Appendix B: Machine life cycle costing related norms and directives

Appendix C: Context factors

Appendix D: Values of reliability and availability of calculation examples

Appendix E: Availability key performance indices worksheet

Appendix F: Life cycle cost phases according to VDI 2884:

Appendix G: Life cycle cost concept in the procurement process (VDI 2884:2005)

Appendix H: Life cycle costs and factors according to VDI 2884:2005

Appendix I: Cost elements according to DIN EN 60300-3-3:2005

Appendix J: Steps of life cycle cost determination according to DIN EN 60300-3-3:2005

Appendix K: Overview of precise calculation results according to VDMA 34160:

Appendix L: Availability key performance indices of calculation examples

Appendix M: LiCMA cube

Appendix N: Needed data (LiCMA method)

Appendix O: Basic reliability block diagrams

Appendix P: Six step approach for contractors

Appendix Q: Tables according to VDI 2891:2008

List of Abbreviations

illustration not visible in this excerpt

1. Handling of follow-up costs of machines and plants as an increasing challenge in today’s business environment

The life cycle costs (LCC) approach originated in the United States in 1939. At this time, it was considered in operating and maintenance costs within the acquisition of tractors by the General Accounting Office (GAO). Interestingly, about 75 years ago, it was understood that the follow-up costs were underestimated compared to the acquisition price.1 Today, the concept is primarily used in the manufacturing industry.2

Due to the on-going globalization and increasing orientation to customer’s needs, the branch of mechanical engineering is under growing economic pressure. Operators of machines and plants have begun to analyse the LCC as a part of their strategic cost management.3 The decision to purchase machines or plants is not only based on the price but also on the forecasted LCC (FLCC), with special regard to follow-up costs.4 In this context, the LCC approach is a method to plan, evaluate and compare different investment alternatives in order to analyse the cost effectiveness of a product.5 From the operator’s point of view, the LCC include all costs caused by the acquisition of a machine to its disposal.6 The follow-up costs comprise all costs of operation and removal.7

The sensibility of follow-up costs of machines and plants has grown in the last years.8 Diverse studies for technical systems indicate that the major cost share occurs during the operation. There is the danger that the hidden follow-up costs appear later on and become higher than the purchase price.9 This can be explained by the fact that machines and plants demonstrate a long lifetime, which causes high costs of operation, maintenance, repairs and removal. Furthermore, the costs of personnel, energy and material have revealed an upward trend in the past years.10

In contrast to static cost elements such as the acquisition price, maintenance and repair costs are highly dynamic depending on the operational framework and the dependability.11 They are further dependent on the so-called RAM (reliability, availability and maintainability) parameters. Complex machines and plants indicate high failure probabilities, which are often estimated with the help of probability models or historic data. Thus, the estimation of unscheduled maintenance and repair cost has become an essential part of the operational costs and appears to be increasingly a difficult task.12

In terms of machines and plants, there is only a small number of LCC estimation models. Most of them are defined by standards or by research works presented in this thesis. The LCC estimation is a broad approach to consider all relevant planning information, time data, qualitative factors and quality aspects as well as their interdependencies. This complexity makes it even more intricate to make a reliable and useful calculation of future LCC.13

The aim of this thesis is to investigate how the estimation quality of LCC models can be improved in consideration of investment decisions about machines and plants from the operator’s point of view with special regard to failure related repair costs. In chapter 2, the significance and conception of LCC in the field of mechanical engineering is presented. It comprises a clarification of goals and assumptions of LCC and its investigation as well as relevant cost and return elements. In addition, the life cycle phases, different perspectives and the presentation of existing models of LCC estimation, as well as specific values of dependability, are provided. This chapter concludes with three numeric calculation examples according to the VDMA14 standard sheet 34160:2006. In the third chapter, the problematic nature of follow-up cost estimation, uncertainty and missing standardisation are addressed. The presented concepts, calculation examples and the reasons for the intricate estimation of follow-up costs are a basis for the investigations in chapter 4. Therein, improvement proposals for the presented LCC estimation models, as well as the consideration and influence of discounting, are examined. This evaluation provides then a basis for the subsequent presentation of a new LCC prognosis model. It is based on the Weibull and Gamma distribution in order to calculate the unscheduled repair costs caused by random failures as a part of the operational expenses. The new approach as a failure related LCC calculation and supportive purchase decision tool in the field of mechanical engineering is evaluated in regard to its practicality. Indications for cost guarantee contracts and a summarising evaluation of the LCC concept as an investment decision method about machines and plants conclude the investigations. In chapter 5, a summary of findings as well as recommended actions for operators of machines and plants and for the future LCC research are appealed.

2. Significance and conception of life cycle costing in mechanical engineering

In chapter 2, the operator’s perspective, the goals and assumptions, the phases of LCC including relevant cost and return elements, as well as the manufacturer’s perspective are clarified. Then, a presentation of the existing models and specific values of dependability follows with three numeric calculation examples based on the VDMA standard sheet 34160:2006.

2.1 Assumptions and differentiation of goals of life cycle costing

First, a singular understanding of expressions used in this thesis should be ensured. During the machine’s lifetime, the maintenance comprises “(…) all technical, administrative and managerial actions (…) intended to retain it in, or restore it to, a state in which it can perform in the required function.”15 The dependability can be defined as being able to perform as required.16 The availability is the “(…) state to perform as and when required, under given conditions (…).”17 Finally, the term of reliability means the “ability (…) to perform a required function under given conditions for a given time interval.”18

For the investigations in this thesis, the following assumptions are made. Within the LCC concept of machines and plants, only costs are considered which are caused by the machine. Thus, there is the assumption that profits and social or environmental aspects are neglected. This is called a LCC analysis in a narrow sense or conventional life cycle costing.19

In order to clearly differentiate between the LCC and the total cost of ownership (TCO) concept, the TCO approach is defined as being valid from the operator’s point of view and comprises all costs of acquisition, operation and disposal. According to the VDI20 directive 2884:2005, the TCO model is a subset of the LCC concept.21 In other words, the TCO concept can be equated with the LCC concept if the operator’s perspective is taken. From the manufacturer’s perspective, the LCC concept involves the idea, development, production and sale phases until the removal by the operator (see section 2.2).22

The LCC estimation is an instrument of the strategic cost management often used for investment decisions.23 In this context, Baum, Coenenberg and Günther (2013, p. 115-116) suggest that the LCC concept is necessary in order to comprehend and properly influence the costs and their sources. This tool helps with identifying advantages in the cost competition. In comparison to the classic cost calculation, the LCC concept mainly has the purpose of making decisions concerning a certain product for a defined period.24 Korpi and Ala-Risku (2008, p. 242) evaluate the LCC approach as the most important cost management tool. According to Schild (2005, p. 124), the LCC concept is often seen as a short-term evaluation tool, however, the results are used in a long-term perspective.

In general, the LCC calculation can be presented as a three-part concept. It consists of the cost calculation, the investment and the project calculation. The cost calculation considers the typical cost elements. The investment calculation includes costs and returns depending on the elapsed time. The factors of quality, costs, performance and time comprise the project calculation.25

According to Abele, Dervisopoulos and Kuhrke (2009, p. 61-63), the LCC depend on three pillars, which are the operation process, the machine’s construction and the type of organization.

As a result, the manufacturer, as well as the operator, has the possibility to influence the machine’s functionality and the operating conditions. For example, an equal machine tool used by different operators can have significant differences in failure rates and therefore causes different LCC.

For this reason, an important aspect for the calculation of LCC is comparability. The lifetime, beginning with the installation and ending with the disposal, as well as the load spectrum are criteria, which enable the possibility of comparison among different machines.26 Defined by the manufacturer and presented in table 1, the load spectrum consists of the period under review, the operating hours per year, the planned quantity per year in case of a production facility, the degree of performance, the machine’s availability and production speed as produced units per hour.

illustration not visible in this excerpt

Table 1: Load spectrum data according to VDMA 34160:200627

The operator’s purchase decision is based on the criterion, which machine causes the minimized LCC during its lifetime. Especially in consideration of long-term investment goods like machines, the application of the LCC concept as a decision tool is of increasing significance because the majority of costs are generated in the operation phase.28 In the case of purchase decisions, the machine should, from the operator’s perspective, cause minimal total LCC in the analysed period (figure 1). As illustrated, a more reliable machine generates lower operation and support costs, whereas the acquisition costs are increased. The optimal machine with the lowest LCC can be determined by the intercept of the acquisition cost line and the operation and support cost line, which both depend on the system’s temporal reliability.29

illustration not visible in this excerpt

Figure 1: Minimized life cycle costs as a function of the machine's temporal reliability30

For the operator, LCC analyses in regard to purchase decisions aim at:31

Comparing LCC of optional machines to support the investment decision Identifying direct and indirect (hidden) cost drivers Identifying trade-offs between manufacturer and operator Developing improvements (cost optimized operation etc.) with the help of reports After presenting the assumptions and goals of LCC in the field of mechanical engineering from the operator’s point of view, the following section provides information about the LCC phases and its perspectives.

2.2 Phases of life cycle costing and its perspectives

According to VDMA (2006, p. 4-5), for a cost-based life cycle evaluation of machines, a life time trisection is generally proposed. The trisection comprises the machine’s phases of acquisition, operation and disposal.

A similar approach by Bubeck (2002, p. 47) presents a concept in which the LCC categories are acquisition costs, utilization costs and end-of-life-costs. Compared with the VDMA (2006) approach, from the operator’s perspective, the mentioned trisection of phases is of most common use in practice.32 From the manufacturer’s point of view, the DIN EN33 60300- 3-3:2005 defines six phases which are34

(1) concept and definition,
(2) conception and development,
(3) production,
(4) fitting,
(5) operation and maintenance and
(6) disposal.

The life cycle from the manufacturer’s point of view starts with the product idea as mentioned in section 2.1. The three phases of LCC and their characteristics based on the VDMA standard sheet 34160:2006 are presented in figure 2. The preparation phase includes costs of acquisition, installation and infrastructure, whereas the further utilization expenses cover disposal costs and possible sale revenues. The operation phase differentiates the four aspects of material, product, utilization and preservation of function as key influencing factors according to their process parameters. The production process is mainly affected by the dependability expressed by the load spectrum and reliability ratios.

illustration not visible in this excerpt

Figure 2: Phases of life cycle costing and their parameters (VDMA 34160:2006)35

From the manufacturer’s perspective presented in figure 3, the life cycle starts with the idea. The construction of the machine consuming material etc. generates costs. If the operator (consumer) purchases the machine, the manufacturer gains revenues (purchase price) and achieves returns or costs with service works during the life time. Guaranteed stipulated service works cause costs for the manufacturer, whereas non-contractual repairs can be charged to the operator’s account.

illustration not visible in this excerpt

Figure 3: Manufacturer's perspective36

The operator’s point of view can be illustrated with figure 4. The machine designed and constructed by the manufacturer induces costs (costs of energy, occupancy etc.) and revenues (sale of produced units) for the operator until the end of the machine’s lifetime.

illustration not visible in this excerpt

Figure 4: Operator‘s perspective37

Because of the fact that the manufacturer already influences the follow-up costs for the operator in the development and construction phase, a mixed view addressing both the manufacturer and the operator is appropriate. The interaction of both, in consideration of minimizing the total LCC, can be explained with a simple example. A one-time performance improvement of the machine produces decreased follow-up costs for the consumer (operator) (e. g. reduced energy consumption). This trade-off describes the interplay between costrelated aspects from the operator’s and manufacturer’s points of view.38

2.3 Elements of costs and returns

To present the cost and return elements according to the operator, the VDMA standard sheet 34160:2006 provides an appropriate compilation. The VDI directive 2884:2005 and the DIN EN 60300-3-3:2005 present additional information, hints and guidelines about which elements of cost and returns can be optionally integrated. These are presented in more detail in the following section.

According to the VDMA standard sheet 34160:2006, the LCC consist of three main cost pools which are preparation costs (PC), operation costs (OC) and further utilization costs (FUC) based on the presented trisection concept in section 2.2.

Table 2 presents an overview of costs and returns. The PC comprise all costs generated by acquisition (equipment, installation etc.), infrastructure (construction, network etc.) and other preparatory costs. The operation phase includes 13 cost pools with their specific variables. Further (additional) utilization costs, like disposal and renovation, the residual value and other further utilization costs, are added up to the FUC.39 A detailed list of cost elements with their specific variables can be seen in appendix A. The abbreviations in brackets serve the purpose of replication with the variables in appendix A and are used in this thesis for convenience. In comparison to the cost elements, table 2 also provides information about returns. By assuming the conventional LCC concept, the presentation of returns should be understood as additional information. The returns are mainly profits by subsidies and tax reduction in the preparation phase, sales revenues in the operation phase and the sale of the machine, components or manufacturing inventory in the disposal phase.40

illustration not visible in this excerpt

Table 2: Elements of costs and returns in respect to the life cycle phases41

The costs of maintenance and inspection (IH1) as well as repairs (IH2) depend on the frequency, the workload, personnel and material costs. More complex is the calculation of unscheduled repairs (IH3). For every component, a failure rate must be added into the calculation, which is then charged with the personnel and material costs (see section 4.3). The failure rates can be determined with the help of historic data, statistical or simulation tools. The VDMA standard sheet 34160:2006 is based on the mean time between failures (MTBF) concept. This ratio describes the mean time between two failures (see section 2.4.2). The mean time to repair (MTTR) defines the average time needed for repair works in the period under review.42 The MTBF value is the reciprocal value of the failure rate, which is included in the worksheet “IH3_Unscheduled_repairs” in variable IH 3.1.43

Depending on the variables presented in appendix A, there are the occupancy, material, energy, process material, disposal, personnel, tool, set-up and warehouse costs in the second phase. In the third phase, the FUC are defined. They comprise the costs of deconstruction and other costs. The deconstruction costs cover expenses for demounting and abandonment as well as logistics. Materials and tools must be recycled, which generates disposal fees. Furthermore, costs of scrapping, deconstruction and reorganization must be considered.44

The following figure presents the basic idea of LCC in the field of mechanical engineering as a cost cube. It comprises the matching of the determined cost elements to both the proper phase of occurrence and the relevant component of the machine. An example would be the maintenance costs of a gear in the operation phase.

illustration not visible in this excerpt

Figure 5: Cost cube of life cycle costing45

2.4 Existing models of life cycle cost estimation and specific values of dependability

In this section, selected machine related LCC models and cost estimation approaches, as well as specific values of machine dependability, are presented.

2.4.1 Presentation of life cycle cost estimation approaches

Over the past years, several norms and guidelines for LCC calculations related to machines were published (see appendix B). Even today, there is not a LCC model that has been fully accepted as a standard. There are many reasons, namely the different application cases of users, data problems and types of machines.46 The majority of norms and guidelines concentrate on a detailed description of maintenance and its cost aspects. The methods are based on qualitative as well as on quantitative factors. The three norms and directives that are the most common in practice in terms of machines are the VDMA standard sheet 34160:2006, the VDI directive 2884:2005 and the DIN EN 60300-3-3:2005.47

Besides these three mentioned approaches, there are several other concepts that are not widely-used in practise or are only used in a certain business area. An example is the M-TCO (maintenance total cost of ownership) concept by Daimler. The aim is to analyse the total maintenance costs of a production facility with the help of a software tool in order to improve the facility dependability. The focus is set on the time after the guarantee with the goal to limit the failure rates of critical parts and the expected repair costs as cost drivers.48

An important basis for LCC calculations is the machine’s structure model in tree structure form. This tree presents the hierarchical structure of the machine beginning with the total system and then, if necessary, separated in the main component groups until the single parts on the lowest level. The degree of detail depends on the data available and the kind of analysis.49 The following example (figure 6) is taken from the calculation example of a blasting plant (see section 2.5.4). Therein, the blasting plant is the total system and the main component groups are mentioned in the second column. There is the possibility of listing all single parts of each main group, but this is renounced here due to complexity.

illustration not visible in this excerpt

Figure 6: Machine configuration - Blasting plant50

The VDMA has invested effort in creating a standardised method to calculate the LCC resulting from an increasing demand from the industry.51 The developed VDMA standard sheet 34160:2006 is drafted as a generic model so that its application is adequate for a universal use. This means that the determination of LCC is facilitated by different levels of detail. Certain cost elements can be added or neglected so that the model’s flexibility is ensured. If the level of detail, the standard sheet’s configuration (load spectrum) and the cost elements are clearly defined, a cost related comparison of different machines is possible.52

As presented in figure 7, the cost elements according to their phase of occurrence can be figured as a cost tree. The cost pools are arranged according to the respective phases of the life cycle (E, B or V in the figure) similar to the presented cost cube.

illustration not visible in this excerpt

Figure 7: Generic life cycle cost model according to VDMA 34160:200653

Summarising the two presented cost structure models (cost tree and cost cube), three different calculation degrees can be generally distinguished:54

(1) Degree 1: Only the total costs of each the three phases (PC, OC and FUC) are included in the calculation as a lump sum.
(2) Degree 2: According to the VDMA standard sheet 34160:2006, the relevant cost types and expenses are determined as lump sums (e. g. IH1, EK1 etc.).
(3) Degree 3: The LCC determination is based on detailed calculations. It considers all variables according to appendix A (e. g. material costs per repair procedure to calculate IH1). Therefore, the components structure of the machine is necessary.

In the following, the three mentioned calculation norms and directives are described in more detail.

The calculation of LCC according to the VDMA standard sheet 34160:2006 comprises seven steps:55

(1) Define relevant cost categories
(2) Define component groups
(3) Specify customer application case
(4) Obtain data
(5) Stipulate calculation method
(6) Check plausibility of results
(7) Prepare process results

The first step of the calculation is described in figure 8. Therein, the relevant machine’s cost categories are defined. The differentiation between supplier (manufacturer) and customer (operator) determines who bears which expenses. For example, supplier warranty inspections can be seen as a profit for the operator in comparison to monthly self-dependent maintenance costs. These activities are stipulated in the guarantee contract (see section 4.5). In the second step, the defined component tree structure as described as an example in figure 6 has to be integrated in the worksheet “Machine_configuration” with their number of assemblies. The machine structure is then automatically transferred to the maintenance and repair cost sheets (IH1, IH2 and IH3).

illustration not visible in this excerpt

Figure 8: VDMA 34160:2006 configuration Excel worksheet56

In the third step, the machine’s specifications and reference processes are fixed for the application case. The specification of the application is especially important for the calculation of repair and maintenance costs. In the VDMA Excel sheet, hourly rates for customer’s and supplier’s personnel (maintenance staff, set-up staff, installer etc.) and hourly rates for process resources (lift truck, measuring machine, stacker etc.) are already given and based on VDMA investigations with the option to add further values as desired. The data is integrated into the worksheet “Context_factors” (see appendix C). The collection of cost data and information about technical specification describes the fourth step. The information can be received from the manufacturer’s tender, the machine’s configuration sheets, sectorial average raw materials and utilities, salaries or occupancy cost rates. The necessary failure rates of parts and component groups is more difficult because of the fact that these data are often not recorded systematically in order to use them as empirical values. With increasing usage time, the maintenance and inspection is only executed in case of deficiencies, so there is often no systematic data collection for the sake of convenience.57

There are several possibilities for determining specific reliability data: reliability analysis based on field data, tests with the help of statistical methods, expert estimations or guidebooks and standards.58

The used values in the following calculation examples are determined with the help of tests and empirical values by the VDMA. They can be viewed in the information packages on the CD and in appendix D.

In the next step, the calculation method is specified. There are two different possibilities. The common method is an average calculation. Thereby, a consistent distribution of costs among the operation time is assumed. This approach simplifies the calculation in comparison to the second method: the precise timing calculation. This method distributes the costs according to their temporal occurrence. In total, the LCC calculation based on the precise timing method are characteristically lower than the average LCC determination. The difference is caused solely by the maintenance costs and their time related causation. After entering all key figures, costs and information, the Excel sheet provides two result sheets presenting the LCC based on the two different calculation methods.59 The single calculation worksheets are similar arranged to the 13 cost pools of the operation phase (see table 2).

In the two last steps, the calculation results have to be checked for their plausibility. Therefore, time relevant ratios are given as calculation outputs (see appendix E) and are provided in the worksheet “Availability KPIs 60 ” in Excel. The results can be transferred into graphics, tables and summary sheets.

According to the standard sheet, the LCC calculation is based on operational time factors. These time factors are defined in the VDI norm 3423:2011.61 The norm helps to ensure a systematic, continuous and traceable documentation of occupied times and to determine organizational and technical problems, as well as dependability and failure rates.62 The defined time values refer to single machines or system components. Table 3 provides an overview of the different time values and their relations.

illustration not visible in this excerpt

Table 3: Time model of VDI norm 3423:201163

The organizational downtimes T0 are all time values caused by shortcomings or operational preparation works. The sum of all downtimes, caused by failures in the design or construction, is the technical downtime TT (e. g. material defects). The preventive maintenance time TW comprises all works of planned maintenance (e.g. scheduled inspection). During the utilisation time TN, the machine runs at full capacity. The addition of these time values results in the occupied time TB, which is the scheduled machine utilisation. Then, by adding the unoccupied time due to lack of production load etc. to TB, the following equation describes the relation between the different time values:64

illustration not visible in this excerpt

The second calculation model is the VDI directive 2884:2005 focused on the application by the operator. The directive “applies to the procurement of alternatively offered production equipment in which costs and performance induced by the production equipment (…) are taken into consideration as part of the procurement decision.”65 From the operator’s perspective, the life cycle phases are separated in the time interval during utilization and after utilization as presented as a graph in appendix F. The LCC curve starts with paying the target price and follows then an increasing trend until the disposal. As presented in the graphic, the OC grows disproportionately. The VDI directive 2884:2005 ensures that, besides performance and quality requirements, maintenance oriented aspects like reliability and OC are considered concerning the purchase decision within a process of eight steps (see appendix G).

In the first step, the directive provides several questions. With the help of these, the user is able to decide if a LCC evaluation is economically justified or not.66 If the majority of follows,questions can be answered with “yes”, the identification of alternative production equipment which describes the second step. Therein, the appropriate production equipment has to fulfil certain requirements according to performance and quality, which are listed in a specification sheet. If a certain range of the listed production equipment alternatives fulfils the requirements, step 3 and 4 executes. The third step has the goal of defining the maintenance strategy. This is a basis for the calculation of the total maintenance costs. Within the maintenance strategy, corrective (e. g. failure correction) and preventive maintenance strategies (e. g. periodically planned maintenance) can be distinguished (see figure 9).67

illustration not visible in this excerpt

Figure 9: Maintenance - overview68

The resulting maintenance strategy is a part of the next step of the identification of application conditions (technical framework) and determination of the planned service life. In the following step, the relevant costs and factors, which are taken into account in the decision- making process, are identified.69 The VDI directive 2884:2005 provides three tables presented in appendix H, which propose possible cost elements according to the appropriate life cycle phase. After determining the relevant cost elements and factors, the collection of the necessary data is specified in step 6. Finally, the alternatives are evaluated quantitatively and qualitatively based on a comparison of the expected costs and returns over the period under review. The directive provides a reliable decision basis in consideration of economic and strategic criteria. It comprises the prediction of LCC for investment decisions, the presentation of influencing factors and the explanation of cost and return relations for possible savings.70

The DIN EN 60300-3-3:2005 presents a concept of LCC calculation with focus on costs that are dependent on the machine’s reliability. This norm is not specialized for machines and plants, however, it is still a useful tool for a machine’s cost calculation. In comparison to the VDMA standard sheet 34160:2006, the norm considers indirect costs (e. g. interdependency with other operations) and soft effects (e. g. knowledge acquisition).71 Within this norm, an instruction for a LCC analysis, as well as guidance for developing a LCC model, is facilitated which are further explicated with the help of illustrated examples. According to the norm, the determination of LCC requires an economic evaluation in order to predict the total acquisition, operation and disposal costs. The aim is to have access to all relevant information in order to make decisions in any phase or at any point of time and to detect relevant cost drivers.72

Within the norm, six main cost types can be distinguished which are

- costs of concept and definition (CCD),
- costs of conception and development (CDD),
- costs of production and fitting (CM),
- costs of operation, maintenance and production (COM) and
- costs of disposal (CD).73

A detailed list of the cost elements can be found in appendix I. Although the focus is set on the manufacturer’s perspective, the list presents proposals for possible cost elements concerning the operator as well. The LCC are calculated by adding the listed cost types:

illustration not visible in this excerpt

The norm proposes three cost estimation methods comprising each six steps presented in appendix J.74 The first step starts with the definition of cost analysis goals, assumptions, limitations and frame conditions, as well as needed sources (experts, data etc.). Then, the selection and development of the LCC model follow, which should demonstrate an adequate level of detail as per the defined goals. In the third step, the application of the LCC model is presented, which comprises the LCC analysis, the data collection, the evaluation and the detection of differences and distortions of results. Afterwards, the documentation of the LCC determination with its results and conclusions, as well as recommended actions, is fulfilled. An interpretation and the definition of the application area is thereby investigated and fixed.

Within the two last steps, the examination of goals, results and the LCC model application, adding the forward projection of analysis concerning the update of the model for future utilization, take place. In each step, the activities have to be documented in detail. In appendix C and D of the norm, an application example can be found. In addition, the norm presents several proposals to handle the influence of inflation, taxation and discounting on LCC (see appendix B of DIN EN 60300-3-3:2005).

2.4.2 Definition of specific values of dependability

Besides the presented concepts, the following specific values reflect the dependability and reliability of machines and plants. With these, the VDI directive 2893:2006 presents an approach for selection and formation of maintenance indictors. The indicators ensure transparency during the operation processes. In the field of maintenance works, the indicators can be used as a basis for strategy and budget planning, comparison of systems, weak-point analysis or verifications of measures. The directive is a guideline which supports the formation of indicators for the planning, controlling, monitoring and the analysis of maintenance. It applies to all investment goods requiring maintenance during their lifetimes.75

In the following, the most important specific values of machine dependability are presented. The failure rate t) “(…) is the conditional probability (…) of a failure in the interval [0; te ] given that the item was new at t = 0 and did not fail in the interval [0; t ].”76 In other words: it is the number of failures during the operating time. In the condition of exponential distributed time points of failures, it follows:77

illustration not visible in this excerpt

As presented in table 3 in section 2.4.1, TN and TT expresses the production time including technical downtimes. The production time divided through the number of failures N expresses the MTBF value which is the reciprocal value of the failure rate:78

illustration not visible in this excerpt

The time of repairs consists of the time of latent failure status, the administrative delay, the logistic delay, the technical delay and the repair duration.79

To calculate the MTTR value, the total repair duration is divided by the number of failures:80

illustration not visible in this excerpt

The following figure demonstrates the interdependency of the MTBF and MTTR values. Furthermore, the mean time to failure (MTTF) is presented which implies the time period of the intact status.

illustration not visible in this excerpt

Figure 10: Interdependency of MTBF and MTTR 81

In this thesis, the interconnection of machine’s components is assumed to be serial for convenience. The system elements can be set in two different statues: functioning or deadlock. The system elements are independent from each other, which means that the failure behaviour of one part is not influenced by that of another. With the help of a reliability block diagram (RBD), the impact of a component failure on the total system can be described.82 A RBD is a graphical presentation of the connection of system’s components.83 In the case of a serial system (I = Input, O = Output), figure 11 presents an example:

illustration not visible in this excerpt

Figure 11: Structure of a serial system84

According to Bertsche and Lechner (2004, p. 79), the system is functioning if there is a connection between I and O and if the specific components n are intact. It is necessary to consider that the RBD is not based on the mechanical structure of the machine. Therefore, the machine comprises several RBDs linked to each other.

Abbildung in dieser Leseprobe nicht enthalten85

The reliability RM (t) of a serial system with n components is:86

illustration not visible in this excerpt

The total value of MTBFM and MTTRn of the machine M can be determined with the help of the MTBFn values of n single components:87

illustration not visible in this excerpt

The availability As of a serial system expresses the duration of total functionality of a machine without any disturbance in per cent. Including the values of equation (2.8) and (2.9), the availability As can be calculated as follows:88

illustration not visible in this excerpt

In order to mathematically describe the failure behaviour of a machine or component, the application of the so-called Weibull distribution with two or three parameters is commonly used.89 The three required parameters are the variables , T and t0. The parameter T covers the lifetime and controls the mean of distribution as a location parameter. The variable stands for the variance of outage time and influences the shape of the failure density function f (t). Because of the fact that the Weibull distribution starts at t = 0 with the first failure, time periods without failures in the beginning are neglected. With the further help of the parameter t0, the time covering the beginning period of no failure until the first failure is considered and the failure rate can then be calculated at a specific point of time t.90

The Weibull distribution can be specified with the probability of failure F (t). Furthermore, it can be described with the help of the reliability R (t) and the probability density function f (t). The variable t expresses time points of failures, the stress time or load changes.91 The two different Weibull distributions are presented in table 4.

illustration not visible in this excerpt

Table 4: Weibull distribution formulas92

For example, it can be asserted that in case of = 1 and t = T, when the characteristic lifetime T is reached, the probability of failure is 63,2 % (equation (2.17)).93 That means that 63,2 % of the components have failed.

illustration not visible in this excerpt

In equation (2.3), the failure rate is defined. According to Bertsche and Lechner (2004, p. 43), the equations (2.18) and (2.19) describe the failure rate Y( ) as a quotient of the density function f (t) and the reliability R (t):

illustration not visible in this excerpt


1 Cf. Ciroth/Verghese/Trescher (2008), p. 91.

2 Cf. Geißdörfer et al. (2012), p. 254.

3 Cf. Geißdörfer (2009), p. 261-266; Schild (2005), p. 36.

4 Cf. Nieman (2005), p. 26; Lad/Kulkarni (2008), p. 79.

5 Cf. Baum/Coenenberg/Günther (2013), p. 122-123.

6 Cf. VDMA (2006), p. 2; Schild (2005), p. 156.

7 Cf. Lauven/Wiedenmann/Geldermann (2010), p. 3; Götze (2000), p. 268.

8 Cf. Scheer et al. (2006), p. 13; Feldhusen/Gebhardt (2008), p. 1-2; Schild (2005), p. 11.

9 Cf. Geißdörfer (2009), p. 1; Weismann (2008), p. 1-2.

10 Cf. Wouters/Anderson/Wynstra (2005), p. 167.

11 Cf. Westkämper/von der Osten-Sacken (1998), p. 354. 1

12 Cf. Enparantza et al. (2006), p. 718.

13 Cf. Schild (2005), p. 173.

14 Verbund Deutscher Maschinen- und Anlagenbau.

15 DIN (2010), p. 6.

16 Cf. DIN (2010), p. 7.

17 DIN (2010), p. 11.

18 DIN (2010), p. 11.

19 Cf. Götze (2000), p. 27; Herrmann (2010), p. 132; Rebitzer (2005), p. 80.

20 Verbund Deutscher Ingenieure.

21 Cf. DIN (2005), p. 6.

22 Cf. Geißdörfer (2009), p. 17-21.

23 Cf. Zsidisin/Ellram/Ogden (2003), p. 129; Dhillon (2010), p. 28-29.

24 Cf. Schild (2005), p. 105-106.

25 Cf. Ederer (2007), p. 28.

26 Cf. Bünting (2009), p. 38; Köllner/Wieser/Striefler (2009), p. 110. 4

27 Taken from VDMA (2012b), worksheet “LCC_configuration”.

28 Cf. Ederer (2007), p. 36-37.

29 Cf. Elmakis/Lisnianski (2006), p. 6

30 Taken from Elmakis/Lisnianski (2006), p. 7.

31 Cf. Rebitzer (2005), p. 90.

32 Cf. Abele/Dervisopoulos/Kuhrke (2009), p. 55-56.

33 Europäische Norm.

34 Cf. DIN (2005), p. 7-8.

35 Taken from VDMA (2006), p. 3; edited by the author.

36 Taken from Rebitzer (2005), p. 87.

The operator’s point of view can be illustrated with figure 4. The machine designed and

37 Taken from Rebitzer (2005), p. 87.

38 Cf. Schild (2005), p. 204.

39 Cf. VDMA (2006), p. 6-13; VDMA (2012b), worksheet “LCC_configuration”.

40 Cf. Mateika (2005), p. 93.

41 Cf. VDMA (2006), p. 6-13; Mateika (2005), p. 93.

42 Cf. VDMA (2006), p. 8-9.

43 Cf. DIN (2002), p. 24 and 31; VDMA (2012b), worksheet “IH3_Unscheduled_repairs”.

44 Cf. VDMA (2006), p. 12-13.

45 Taken from Abele/Dervisopoulos/Kuhrke (2009), p. 55; edited by the author. 10

46 Cf. Dhillon (2010), p. 43.

47 Cf. Abele/Dervisopoulos/Kuhrke (2009), p. 57.

48 Cf. Albrecht/Wetzel (2009), p. 82-83.

49 Cf. Abele/Dervisopoulos/Kuhrke (2009), p. 66-67.

50 Taken from CD/ B. Calculations/ LCC VDMA34160 Blasting plant, worksheet “Machine_configuration”.

51 Cf. Klempert (2012), p. 1.

52 Cf. VDMA (2006), p. 3.

53 Taken from VDMA (2012a), p. 5.

54 Cf. VDMA (2012a), p. 5-6.

55 Cf. VDMA (2012a), p. 7.

56 Taken from VDMA (2012b), worksheet “LCC_configuration”.

57 Cf. Herrmann/Kara/Thiede (2011), p. 226.

58 Cf. Herrmann/Kara/Thiede (2011), p. 226.

59 Cf. VDMA (2012b), worksheets “LCC_average ” and “ LCC_with_precise_timing”.

60 Key performance indices.

61 Cf. Bode/Bünting/Geißdörfer (2011), p. 21.

62 Cf. VDI (2011), p. 2-3.

63 Taken from VDI (2011), p. 5.

64 Cf. VDI (2011), p. 5-7.

65 VDI (2005), p. 3.

66 Cf. VDI (2005), p. 8.

67 Cf. VDI (2005), p. 9; Scheer et al. (2006), p. 65.

68 Taken from Birolini (2004), p. 113.

69 Cf. VDI (2005), p. 11.

70 Cf. VDI (2005), p. 4.

71 Cf. VDMA (2006), p. 2.

72 Cf. DIN (2005), p. 7.

73 Cf. DIN (2005), p. 23-25.

74 Cf. DIN (2005), p. 29-50.

75 Cf. VDI (2006), p. 2.

76 Birolini (2010), p. 35.

77 Cf. DIN (2002), p. 17-18.

78 Cf. DIN (2002), p. 24 and 31; DIN (2013), p. 24.

79 Cf. DIN (2002), p. 41.

80 Cf. Fleischer/Wawerla (2007), p. 4; DIN (2013), p. 47.

81 Taken from Delonga (2007), p. 17; edited by the author.

82 Cf. Bertsche/Lechner (2004), p. 78-79; Fritz (2001), p. 15.

83 Cf. Yang (2007), p. 66.

84 Taken from Bertsche/Lechner (2004), p. 79; edited by the author. 20

85 Cf. Kohlmeier (2007), p. 259.

86 Cf. Bertsche/Lechner (2004), p. 81; Birolini (2004), p. 42.

87 Cf. Kohlmeier (2007), p. 259.

88 Cf. DIN (2002), p. 35.

89 Cf. Bertsche/Lechner (2004), p. 37; Yang (2007), p. 20.

90 Cf. Bertsche/Lechner (2004), p. 37.

91 Cf. Bertsche/Lechner (2004), p. 41-43; Fritz (2001), p. 11.

92 Cf. Bertsche/Lechner (2004), p. 43; DIN (2013), p. 16-20.

93 Cf. Bertsche/Lechner (2004), p. 42-46.

Excerpt out of 106 pages


Life Cycle Costing as a Tool of Project Controlling in the Field of Mechanical Engineering
Technical University of Munich
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
2276 KB
life, cycle, costing, tool, project, controlling, field, mechanical, engineering
Quote paper
Anonymous, 2014, Life Cycle Costing as a Tool of Project Controlling in the Field of Mechanical Engineering, Munich, GRIN Verlag,


  • No comments yet.
Look inside the ebook
Title: Life Cycle Costing as a Tool of Project Controlling in the Field of Mechanical Engineering

Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free