Chemical Engineering December 2020 - 32

Feature Report
Using Lifecycle Cost Analysis
for Best Project Value
Lifecycle cost analysis (LCCA) can be used as a tool for selecting alternatives that add the most
value to a project. The methodology for implementing LCCA is described here
Sebastiano
Giardinella,
Zabdyk V.
Baumeister and
Alberto J.
Baumeister
Ecotek group of
companies
IN BRIEF
LCCA BASICS
DISCOUNT RATE &
PRESENT VALUE
LEVELIZED COST PER
UNIT
LCCA AT DIFFERENT
PROJECT PHASES
EXAMPLES OF LCCA
LCCA IN CIRCULAR
ECONOMY
n the chemical process industries (CPI),
identifying optimum process designs
challenges both process and cost engineers:
the first must optimize the process
in terms of throughput rate, process
yield and product purity (among other factors),
whereas the second are responsible
for estimating the costs of the different design
alternatives to allow assessing their
impact against the business case. Their
close interaction from the beginning of the
project is key, as the ability to impact cost
and functional capabilities is highest in the
project's early stages, where the cost of
design changes is lowest [1].
The types of choices the design team
takes throughout project development usually
include: location, capacity, technology
and process configuration (typically at the
visualization/conceptual phase), equipment
types and specifications, layout definition,
utilities (typically at the conceptual/ basic engineering
phase), vendor selection, construction
methods, logistics and general planning
(typically at the detail engineering/procurement/construction
phase), and operational
improvements (during operation of the plant).
In some situations, the decision is taken
based on the lowest price (or lowest initial
cost). This approach is better suited when
comparing different bidders offering the
same product or service, with little differentiation
amongst the bidders (for example,
civil works, where the design drawings and
quantities of materials have been previously
defined and included in the scope of the
contract, and the bidders are selected from
a short list of pre-qualified firms).
In other scenarios, there may be important
differences between the evaluated alternatives
in terms of capital, operations and maintenance
and decommissioning costs. Here,
being " cost effective " no longer means considering
only the initial cost of an investment,
but rather the investment throughout its entire
32
I
NOMENCLATURE
A0 = Amount of recurring cost
At = Amount of one-time cost at year t
Agei = Age of component i
CE = Circular economy
CPU = Cost per unit
d = Real discount rate
EI = Eco-innovation
I = Initial cost
Ii = Initial cost of component i
INFLATION = Inflation rate
Li = Useful life of component i
LCC = Lifecycle cost
LCCA = Lifecycle cost analysis
LCOE = Levelized cost of electricity
MMUSD = Million U.S. dollars
NOMINAL = Nominal rate
PV = Present value
PVB = Present value of benefits
PVD&R = Present value of disposal and replacement
costs
PVM&R = Present value of maintenance and repair
costs
PVO = Present value of operation costs
PVRV = Present value of residual value
Q0 = Recurring annual production
Qt = Quantity of units produced in year t
RVi = Residual value of component i
t = Time expressed in years
useful life. In these cases, other techniques
are better suited, such as: evaluation matrix,
value-improvement practices, cash flow analysis
or lifecycle cost analysis (LCCA).
The present article focuses on LCCA as
a tool for selecting alternatives that add the
most value to a project, describing a basic
methodology for implementing an LCCA, with
some examples of applications in the CPI.
LCCA basics
To put it simply, the purpose of a LCCA is to
enable the project design team to select the
alternative with the " least long-run cost " [2]
and obtain the same end goal. This is done
by comparing the different alternatives on a
common base: total levelized cost, which
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