My first lesson in life cycle cost analysis came at an early age when my parents decided to reward me with a car for my sixteenth birthday. At the time, it did not don on me that this was also a life lesson.
The deal was simple, my parents told me that they had two cars in mind and they wanted me to determine which one was the best deal. I knew something was amiss since both cars were the same price and model year. The only noticeable difference was the actual model and make were different.
So, me with my natural curiosity, I began to investigate. After a few days of comparison and investigating, it became clear to me that these two vehicles were not equal. At least, not in terms of cost of ownership. One vehicle for starters would incur a much higher cost for insurance. The next thing I noticed was that the same vehicle would also cost substantially more to maintain.
Needless to say, it was a lesson that I never forgot. LCCA or life cycle cost analysis is a practice every individual or business should employ. Many times, it is this cost that inevitably derails a budget or debilitates a business. Therefore, over the next few paragraphs, we will discuss how to do a life cycle cost analysis as well as the advantages of doing so.
What is a Life Cycle Cost Analysis?
A life cycle cost analysis (LCCA) is an evaluation tool or method used to determine the expenditure required to purchase, own, operate, and maintain an item or service. This analysis is a very critical and intricate part of your purchasing process and future financial forecast.
Regardless of the appearance of different competing alternatives, the final purchase decision should not be made until a life cycle cost analysis is made. An LCCA is also a subset of a cost-benefit analysis or CBA.
As a whole, a CBA analyzes the various benefits and the related cost for various alternatives. As a result, you may initially need to do a CBA, but it is the LCCA that should be used to make the final purchasing decision.
How a Life Cycle Cost Analysis and Cost-Benefit Analysis Coexist
For example, if you apply a CBA to justify the purchase of a particular CPU to build your computer around, you would still need to develop an LCCA model to evaluate life cycle costs. As you may know, today’s CPUs are more powerful and efficient than ever before. The need for more cores and higher processing speeds is a necessity to keep up with the ever-changing technological landscape.
We all have that pile of obsolete electronics, but trying to avoid obsolescence in your designs is painstaking.
So, for the sake of comparison, let’s say you are considering both the Ryzen CPU and the Intel Core CPU series. When employing the CBA, you will immediately notice that the cost of the Intel Core processors is basically double the price of AMD Ryzen processors with the exception of the Ryzen Threadrippers.
Although, in general, the initial cost of the Intel processors is higher, the performance level is nearly equal. In fact, the Ryzen series has more cores and lower power consumption as well. With performance being equal and the AMD Ryzen series being less expensive, an LCCA is still needed to confirm and finalize the purchasing decision.
How to Do a Life Cycle Cost Analysis of an Electronic Device
Whether your life cycle analysis is for an electronic device or component, the approach is the same.
The Five Stages of Calculating an LCCA:
1. Develop design alternatives that deliver the same structural and performance objectives. At this stage, you identify a minimum of two mutually exclusive options that serve the same purpose. For example, AMD Ryzen CPU and Intel Core processor series.
2. Define the schedule of initial and future activities of the asset or project design and each of the alternatives. At this stage, the analysis requires an understanding of the deterioration the asset (processor) would suffer through use, age, natural wear and tear, and other factors. You would also consider the impact of the aforementioned deterioration would have on performance. Finally, at this stage, you would consider the level of maintenance (if any) required to ensure the performance remains constant even while experiencing these deteriorations.
3. Estimate the costs involved for each alternative. At this stage, you must consider procurement costs, day-to-day maintenance costs, expenses to address safety and operational requirements, as well as the cost of raw materials such as fuel if applicable. Furthermore, you must consider annual costs to replace spares and the salvage value or remaining service life (RSL) of the asset at the end of the analysis period.
4. Find the present value of each alternative through “discounting." Here is where you identify the costs that allow you to calculate the net present value or NPV. The NPV is the value of an item, device, or service in the present, in contrast to some future value it will have after it has been used.
5. Analyze the results. At this stage, you will examine your accumulated data and assess as well as compare. This, in turn, will determine the present value of all the expenses for each alternative as well as allow for a direct comparison of the costs associated with each alternative. Finally, the ideal alternative or choice will have the lowest overall cost throughout its life cycle.
The Life Cycle of Electronic Devices
An asset is defined as an item, device, thing or entity that has potential or actual value to an organization or business. Furthermore, asset management and life cycle cost analysis go hand-in-hand. The understanding of the importance of the implied integration of the two methodologies is imperative to the life of any business.
In addition, whether it is electronic devices, electrical components or a service you provide, you must take into consideration the entirety of the costs associated with its life cycle.
Also, it is equally important that you understand the stages or phases of an (electronic) devices life cycle. The life cycle of an electronic device or any device or service consists of four key stages or phases. They are as follows:
1. Planning: This, of course, is the first stage of the asset’s life cycle. This is also where you assess your company’s needs as they pertain to the number of devices required to meet your needs. This stage establishes and verifies asset requirements.
2. Acquisition: During this stage, your business purchases the required asset, but only after careful adherence to an LCCA as well as a CBA.
3. Use or operation and maintenance: During this stage of the electronic device's life cycle, the device is utilized for the purpose it was intended. This also includes the required maintenance necessary to keep the device at peak operational performance levels.
4. Retirement or disposal: Regardless of use, maintenance or build quality, all devices eventually reach this stage. Although, this is the final stage of the device’s life cycle, in many ways it is the most important.
Whether new or old, a life cycle cost analysis of a device will benefit your production drives.
Simply because many businesses equate extending a device’s life cycle as the equivalent of saving money. However, that is not always true. There are times in which paying for say a five-year-old printer to be repaired costs twice as much as replacing it with a newer better performing model. Not to mention the fact that the newer printer will most likely be more efficient and faster and therefore saving the company even more money.
In conclusion, if your business utilizes effective planning in all phases of asset management and life cycle cost analysis, it will help in:
assessing the practical sufficiency of existing assets
ensuring resources are available when necessary
recognizing excess or under-performing assets
estimating options for asset provision and funding asset acquisition
ensuring assets are maintained and liable
Furthermore, the need for accuracy in these assessments is critical to the life of your business. There is an undeniable need for better asset management and cost analysis as a whole. Your business’s performance, profitability, and future depend on it.
Thankfully, with Cadence’s suite of design and analysis tools, you’ll be sure to have your designers and production teams working together towards developing the best life cycle cost analysis plan for your integrated circuits and all of your CMOS technology. Allegro PCB Designer is the layout solution you’ve been looking for and it can surely facilitate the best life cycle cost analysis plans for all of your electronic device needs.
If you’re looking to learn more about how Cadence has the solution for you, talk to us and our team of experts.