Life Cycle Costs

Life Cycle Costing is at the heart of Asset Management: essentially, it is coming up with a schedule for maintenance, repair, and replacement as well as capital improvements that is informed by the criticality/ prioritization assessment. Knowing exactly how much and what type of maintenance to do on an asset during its life and the correct point to replace the asset optimizes operational and capital expenditures. Prioritizing those assets with a high BRE/ criticality rating is a good starting point for deciding what maintenance to perform.

Many utility management software programs include automated maintenance schedules, work order management, and Capital Improvement Plan capabilities that significantly reduce the need for utility personnel to monitor maintenance and/or forecast the rehabilitation or replacement of assets. These programs, however, are only as good as the accuracy and reliability of the data inputs emphasizing the importance of the inventory, mapping, conditional and criticality assessment.

Life cycle costing can inform:

1. Operations and Maintenance (O&M) Program:
   • Operations:
     • Standard Operating Procedures (SOP) – Used on a routine or scheduled basis to keep the plant functional and to ensure that all permit conditions or regulatory requirements are met;
     • Alternate Operating Procedures – Used when conditions change and SOPs are no longer practical or possible. An example of this would be a piece of equipment being taken off line for maintenance or repair or for scheduled shut-downs;
     • Emergency Operating Procedures – Used when severe conditions occur, such as natural disasters (flooding, tornadoes, fire, etc.) or the sudden failure of a critical asset.

   • Maintenance

     A goal for utilities that follow Asset Management principles is a ratio of 80 percent planned maintenance (including the categories of planned, preventative, and warranty-related) and 20 percent reactionary (corrective) maintenance [Kansas, AM Kan Work! An Asset Management and Energy Efficiency Manual, New Mexico Environmental Finance Center/New Mexico Tech, http://southwestefc.unm.edu/main.php?page] – Involves those activities that help keep the assets in good working order so that they will function reliably. Maintenance falls into the broad categories listed below:
     • Routine/Planned Maintenance
     • Preventative Maintenance
     • Warranty-Related Maintenance
     • Corrective Maintenance
       
2. Repair/Replacement Schedule:
   The repair or replacement of system components should be prioritized based on the following:
   • High criticality or BRE factor (consequence and probability of failure) – Assets with greater risk of failure should be prioritized above all others to be replaced;
   • Energy Efficiency – If the asset expends greater than expected amounts of energy, it should be evaluated for cause of energy inefficiency and repaired or replaced with a more energy efficient asset;
   • Alignment with LOS goals -- Similarly, if the LOS includes a goal to reduce greenhouse gas emissions and the asset can be replaced by an asset that uses a “green” source of energy, replacement of the asset may be a good strategic idea, even if this option is not the least expensive alternative.
     
     
3. Capital Improvement Plan (CIP):
   • A CIP determines a system’s short and long-term asset rehabilitation and replacement projections, based on the asset inventory, life cycle costs and O&M needs.  This spending plan, demonstrating an annualized schedule for system improvements/enhancements and should cover at least five (5) years. A CIP should include for each project to be completed:
     • Description of the project
     • Need for and benefits of the project
     • Estimate of project cost
     • Estimate of O&M
     • Funding source(s)
   • For asset management planning, a CIP should describe the following:
     • Future capital projects (and anticipated associated expenditures) for plans to add new assets to the system that upgrade or improve existing capacity;
     • Renewal projects (and associated expenditures) for plans to restore an existing asset to its original capacity, without increasing an asset’s design capacity.
   • • The CIP should be updated annually so that it always covers the same length of time. Projects that were listed for the current year that were not completed should be moved to the following year. If no projects are anticipated for a given year, the CIP should reflect this.