Dependability management - Part 3-3: Application guide - Life cycle costing

IEC 60300-3-3:2017 establishes a general introduction to the concept of life cycle costing and covers all applications. Although costs incurred over the life cycle consist of many contributing elements, this document particularly highlights the costs associated with the dependability of an item. This forms part of an overall dependability management programme as described in IEC 60300-1. Guidance is provided on life cycle costing for use by managers, engineers, finance staff, and contractors; it is also intended to assist those who may be required to specify and commission such activities when undertaken by others. This third edition cancels and replaces the second edition published in 2004. This edition constitutes a technical revision. This edition includes the following significant technical changes with respect to the previous edition:
- addition of a complete analysis process;
- greater reference to international accounting practices;
- increased discussion of financial concepts.

Gestion de la sûreté de fonctionnement - Partie 3-3: Guide d'application - Évaluation du coût du cycle de vie

IEC 60300-3-3:2017 fournit une introduction générale au concept de l’évaluation du coût du cycle de vie et couvre toutes les applications. Bien que les coûts du cycle de vie consistent en la contribution de plusieurs éléments, le présent document met particulièrement l’accent sur les coûts associés à la sûreté de fonctionnement d’une entité. Cela fait partie d’un programme global de gestion de la sûreté de fonctionnement comme décrit dans l’IEC 60300-1. Des lignes directrices relatives à l’évaluation du coût du cycle de vie sont fournies à l’intention des directeurs, des ingénieurs, du personnel des finances et des maîtres d'œuvre; elles visent également à aider ceux qui peuvent être tenus de préciser et commander de telles activités lorsqu’elles sont entreprises par d’autres. Cette troisième édition annule et remplace la deuxième édition parue en 2004. Cette édition constitue une révision technique. Cette édition inclut les modifications techniques majeures suivantes par rapport à l'édition précédente:
- ajout d’un processus d’analyse complet;
- référence accrue aux pratiques comptables internationales;
- examen plus approfondi des concepts financiers.
Mots clés : analyse économique, coût total d’une entité

General Information

Status
Published
Publication Date
26-Jan-2017
Technical Committee
Current Stage
PPUB - Publication issued
Start Date
27-Jan-2017
Completion Date
27-Jan-2017
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IEC 60300-3-3
Edition 3.0 2017-01
INTERNATIONAL
STANDARD
NORME
INTERNATIONALE
colour
inside
Dependability management –
Part 3-3: Application guide – Life cycle costing
Gestion de la sûreté de fonctionnement –
Partie 3-3: Guide d’application – Évaluation du coût du cycle de vie
IEC 60300-3-3:2017-01(en-fr)
---------------------- Page: 1 ----------------------
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---------------------- Page: 2 ----------------------
IEC 60300-3-3
Edition 3.0 2017-01
INTERNATIONAL
STANDARD
NORME
INTERNATIONALE
colour
inside
Dependability management –
Part 3-3: Application guide – Life cycle costing
Gestion de la sûreté de fonctionnement –
Partie 3-3: Guide d’application – Évaluation du coût du cycle de vie
INTERNATIONAL
ELECTROTECHNICAL
COMMISSION
COMMISSION
ELECTROTECHNIQUE
INTERNATIONALE
ICS 21.020 ISBN 978-2-8322-3886-8

Warning! Make sure that you obtained this publication from an authorized distributor.

Attention! Veuillez vous assurer que vous avez obtenu cette publication via un distributeur agréé.

® Registered trademark of the International Electrotechnical Commission
Marque déposée de la Commission Electrotechnique Internationale
---------------------- Page: 3 ----------------------
– 2 – IEC 60300-3-3:2017 © IEC 2017
CONTENTS

FOREWORD ........................................................................................................................... 5

INTRODUCTION ..................................................................................................................... 7

1 Scope .............................................................................................................................. 8

2 Normative references ...................................................................................................... 8

3 Terms, definitions and abbreviated terms ........................................................................ 8

3.1 Terms and definitions .............................................................................................. 8

3.2 Abbreviated terms ................................................................................................. 11

4 Concepts of life cycle costing ........................................................................................ 11

4.1 Objectives of life cycle costing .............................................................................. 11

4.2 Application of life cycle costing ............................................................................. 12

4.3 Factors influencing LCC ........................................................................................ 13

4.4 Factors related to dependability ............................................................................ 13

5 Life cycle costing process .............................................................................................. 14

5.1 General ................................................................................................................. 14

5.2 Establish the organizational context ...................................................................... 14

5.2.1 Formulate the context .................................................................................... 14

5.2.2 Identify alternatives ....................................................................................... 16

5.3 Plan the analysis .................................................................................................. 16

5.3.1 Define scope and objectives of the analysis ................................................... 16

5.3.2 Define analysis tasks and identify contributing personnel .............................. 16

5.3.3 Identify constraints ........................................................................................ 17

5.3.4 Identify relevant financial parameters ............................................................ 17

5.4 Define the analysis approach ................................................................................ 18

5.4.1 Establish rules/methodology .......................................................................... 18

5.4.2 Select or develop an LCC model .................................................................... 18

5.4.3 Define the cost breakdown structure .............................................................. 19

5.4.4 Identify areas of uncertainty ........................................................................... 20

5.5 Perform the analysis ............................................................................................. 21

5.5.1 Establish methods for estimating cost elements ............................................. 21

5.5.2 Collect cost data ............................................................................................ 21

5.5.3 Aggregate cost per item for each stage or time period ................................... 22

5.5.4 Perform LCC and sensitivity analysis ............................................................. 22

5.5.5 Review analysis ............................................................................................. 22

5.5.6 Assess achievement of analysis objectives .................................................... 22

6 Finalize the analysis ...................................................................................................... 23

6.1 Identify follow-up actions ...................................................................................... 23

6.2 Document analysis ................................................................................................ 23

Annex A (informative) Life cycle costing and the life cycle ................................................... 24

A.1 General ................................................................................................................. 24

A.2 Typical LCC analyses ........................................................................................... 25

A.3 Committed versus actual costs .............................................................................. 25

Annex B (informative) Financial concepts ............................................................................ 27

B.1 General ................................................................................................................. 27

B.2 Consequential costs .............................................................................................. 27

B.3 Warranty costs ...................................................................................................... 28

B.4 Liability costs ........................................................................................................ 28

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IEC 60300-3-3:2017 © IEC 2017 – 3 –

B.5 Opportunity costs, discounting, inflation and taxation ............................................ 29

B.5.1 General ......................................................................................................... 29

B.5.2 Opportunity costs........................................................................................... 29

B.5.3 Taxation ........................................................................................................ 29

B.5.4 Exchange rate ............................................................................................... 29

B.5.5 Generally accepted accounting principles ...................................................... 29

Annex C (informative) Application of financial evaluation techniques ................................... 30

C.1 General ................................................................................................................. 30

C.2 Discounted cash flow (DCF) .................................................................................. 30

C.3 Internal rate of return (IRR) ................................................................................... 30

C.4 Depreciation and amortization ............................................................................... 30

C.5 Cost-benefit analysis ............................................................................................ 30

C.6 Time value of money ............................................................................................. 31

Annex D (informative) Cost breakdown structures by life cycle stage ................................... 32

D.1 General ................................................................................................................. 32

D.2 Life cycle stage cost element ................................................................................ 32

D.2.1 General ......................................................................................................... 32

D.2.2 Concept ......................................................................................................... 32

D.2.3 Development ................................................................................................. 32

D.2.4 Realization .................................................................................................... 33

D.2.5 Utilization ...................................................................................................... 33

D.2.6 Enhancement ................................................................................................ 34

D.2.7 Retirement ..................................................................................................... 34

D.3 Cost element explanation ...................................................................................... 34

D.3.1 General ......................................................................................................... 34

D.3.2 Project management ...................................................................................... 35

D.3.3 Engineering ................................................................................................... 35

D.3.4 Producibility engineering and planning ........................................................... 35

D.3.5 Manufacturing ................................................................................................ 35

D.3.6 Facilities ........................................................................................................ 35

D.3.7 Support and test equipment ........................................................................... 35

D.3.8 Initial training ................................................................................................. 35

D.3.9 Initial spares and repair parts ........................................................................ 35

D.3.10 Consumables ................................................................................................. 35

D.3.11 Contractor services ........................................................................................ 35

Annex E (informative) Evaluating intangibles ....................................................................... 36

E.1 General ................................................................................................................. 36

E.2 Intangibles ............................................................................................................ 36

E.3 Valuing methods ................................................................................................... 37

Annex F (informative) Methods for estimating cost elements ................................................ 38

F.1 General ................................................................................................................. 38

F.2 Parametric cost method ........................................................................................ 38

F.3 Analogous cost method ......................................................................................... 40

F.4 Engineering cost method ...................................................................................... 40

Annex G (informative) Example of LCC comparison ............................................................. 42

G.1 General ................................................................................................................. 42

G.2 Simple example of LCC comparison ...................................................................... 42

G.2.1 General ......................................................................................................... 42

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– 4 – IEC 60300-3-3:2017 © IEC 2017

G.2.2 Configuration option 1 ................................................................................... 42

G.2.3 Configuration option 2 ................................................................................... 42

G.2.4 Configuration option 3 ................................................................................... 42

G.2.5 Configuration option 4 ................................................................................... 43

G.2.6 LCC calculation ............................................................................................. 43

Bibliography .......................................................................................................................... 44

Figure 1 – Life cycle costing process .................................................................................... 15

Figure 2 – Cost breakdown structure concept ....................................................................... 19

Figure A.1 – Typical analyses across the life cycle ............................................................... 25

Figure A.2 – Example of committed and actual costs ............................................................ 26

Figure F.1 – Potential sources of costs ................................................................................. 38

Figure F.2 – Example of cost elements used in a parametric cost analysis ............................ 39

Table G.1 – Summary of LCC comparison ............................................................................ 43

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IEC 60300-3-3:2017 © IEC 2017 – 5 –
INTERNATIONAL ELECTROTECHNICAL COMMISSION
____________
DEPENDABILITY MANAGEMENT –
Part 3-3: Application guide – Life cycle costing
FOREWORD

1) The International Electrotechnical Commission (IEC) is a worldwide organization for standardization comprising

all national electrotechnical committees (IEC National Committees). The object of IEC is to promote

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International Standard IEC 60300-3-3 has been prepared by the IEC technical committee 56:

Dependability.

This third edition cancels and replaces the second edition published in 2004. This edition

constitutes a technical revision.

This edition includes the following significant technical changes with respect to the previous

edition:
a) addition of a complete analysis process;
b) greater reference to international accounting practices;
c) increased discussion of financial concepts.
---------------------- Page: 7 ----------------------
– 6 – IEC 60300-3-3:2017 © IEC 2017
The text of this standard is based on the following documents:
FDIS Report on voting
56/1713/FDIS 56/1720/RVD

Full information on the voting for the approval of this standard can be found in the report on

voting indicated in the above table.

This publication has been drafted in accordance with the ISO/IEC Directives, Part 2.

A list of all parts in the IEC 60300 series, published under the general title Dependability

management, can be found on the IEC website.

The committee has decided that the contents of this publication will remain unchanged until

the stability date indicated on the IEC web site under "http://webstore.iec.ch" in the data

related to the specific publication. At this date, the publication will be
• reconfirmed,
• withdrawn,
• replaced by a revised edition, or
• amended.

IMPORTANT – The 'colour inside' logo on the cover page of this publication indicates

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understanding of its contents. Users should therefore print this document using a

colour printer.
---------------------- Page: 8 ----------------------
IEC 60300-3-3:2017 © IEC 2017 – 7 –
INTRODUCTION

Life cycle costing is the process of performing an economic analysis to assess the cost of an

item over a portion, or all, of its life cycle in order to make decisions that will minimize the

total cost of ownership while still meeting stakeholder requirements. Generally, an

organization may only be able to, or need to, evaluate cost for a portion of the total life of an

item. Across the life of any item, decisions involving a trade-off between current and future

costs will be necessary. This trade-off process will be enhanced by defining the short and

long term implications of feasible expenditure decisions.

The principal use of this document is to compare one alternative system solution to another

where future cost of ownership comprising maintenance, operations, enhancement and

disposal actions is significant and require a balance between the cost of acquisition and the

residual unrealized risk of ownership. Such a balance is achieved by technical and monetary

assessments that take into account varying outcomes of availability, reliability, maintainability

and supportability. Life cycle costing can also provide essential data to develop budgetary

estimates.

This document is also intended to assist those who may be required to specify, commission

and manage such activities when undertaken by others.

The highest value from life cycle costing is achieved early in the life of an item when many

configuration options are possible and influence on future costs the greatest. Studies have

shown that life cycle costs are mostly committed and the opportunity for affordable change is

progressively reduced as item detailed design is approached.

Life cycle costing comprises only expense elements, which may be tangible or intangible;

revenue or value outcomes are not included. Costs comprise all expected future expenditure

including financial allowance for residual risk. Value outcomes, such as revenue, are analysed

in the subsequent financial or economic trade-off analysis that use the results of the life cycle

cost analysis.

Analysis outcomes are often presented as a single figure representing all future expenditures

at a single point in time. The analysis may also be presented as a future cost profile without

inclusion of the time value of money. However, as future costs are uncertain in both

approaches, the analysis may also be presented as a probability distribution to highlight any

potential sensitivity of the outcome to that uncertainty.

When assessing the impacts of potential options, analysts may need to cost intangible

outcomes such as safety exposure, loss of public amenity or damage to corporate image. The

use of multi-attribute rank ordering or semi-quantitative matrixes are not applicable for

assessing these impacts as life cycle costing has a quantitative outcome of cost, namely: life

cycle cost (LCC). Many quantitative techniques, such as “willingness to pay” or “choice

modelling” have been developed and are often applied to assure all direct consequences are

included in the analysis.

The approach defined in this document recognizes that life cycle costing has been applied for

many decades across many industries, some of which have developed their own set of terms

and language. An organization may adapt the terms used in this document to their context of

use to ensure that the intent of this document is achieved.
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– 8 – IEC 60300-3-3:2017 © IEC 2017
DEPENDABILITY MANAGEMENT –
Part 3-3: Application guide – Life cycle costing
1 Scope

This part of IEC 60300 establishes a general introduction to the concept of life cycle costing

and covers all applications. Although costs incurred over the life cycle consist of many

contributing elements, this document particularly highlights the costs associated with the

dependability of an item. This forms part of an overall dependability management programme

as described in IEC 60300-1 [1] .

Guidance is provided on life cycle costing for use by managers, engineers, finance staff, and

contractors; it is also intended to assist those who may be required to specify and commission

such activities when undertaken by others.
2 Normative references
There are no normative references in this document.
3 Terms, definitions and abbreviated terms
3.1 Terms and definitions
For the purposes of this document, the following terms and definitions apply.

ISO and IEC maintain terminological databases for use in standardization at the following

addresses:
• IEC Electropedia: available at http://www.electropedia.org/
• ISO Online browsing platform: available at http://www.iso.org/obp
3.1.1
acquisition cost

initial cost of developing and realizing an item so it can be utilized and placed into service

3.1.2
amortization
paying off of debt with a fixed repayment schedul
...

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