ADVANCED PROJECT MANAGEMENT STUDIO

Name : G.Mounika sri, Roll no:2271NF007

Ist year,Semester-II
Subject : Advance Project Management Studio
Ass-03 : Life cycle costing
Faculty : Dr.K.R.Ramana/JM Balachandra
College : Ashoka School of Planning & Architecture
1
CONTENTS:

1. Problem solving on Life cycle costing …………………………….01,02

Life cycle costing:

Life cycle costing (LCC) is a financial analysis technique used to assess the total cost of owning,
operating, and maintaining an asset or a project throughout its entire life cycle. It takes into
account not only the initial purchase cost but also the ongoing costs associated with the asset
over its expected lifespan. This approach provides a more comprehensive view of the
financial implications of an investment by considering costs beyond the point of acquisition.
Life cycle costing process involves in several stages:
I. Identification of costs
II. Time horizon
III. Cost estimation
IV. Discounting
V. Calculation of total costs
VI. Comparision
Advantages:
I. Informed decision making
II. Optimal Asset selection
III. Accurate budgeting
IV. Environmental considerations
V. Risk Assessment
VI. Project justification
Formula:
LCC= I+(OC*LI+MC*LI) - S
I = Initial cost
OC=Operating cost per annum
MC=Maintenance cost per annum
S=Scrap value at the end of Life
LI=Life of machine

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1. MARUTI CONSTRUCTIONS ARE PLANNING TO BUY A 60 KVA DIESEL GENERATOR SET
FOR THEIR CONSTRUCTION PROJECT SITE . THEY OBTAINED 3 QUOTATIONS AFTER
FLOATING THE TENDER FROM THE FOLLOWING DG SET:
I. KIRLOSKAR CUMMINS
II. GE ELECTRICALS
III. GREAVES COTTON.
They are considering to take decision based on the following strategy:
 To finalize on the Manufacturers based on Initial cost quoted. (First cost basis)
 To finalize on the manufacturer based on Life cycle costing.
You are requested to provide decisions based on both the criteria as to whom must be
decided for placing the order.
The following data is provided for providing your solution to the problem:
Sl Name of Manufacturer Kirloskar GE Electric Greaves cotton
no Parameters of cost cummins
1 Cost including taxes and duties(I) 12,00,000 16,00,000 14,00,000
2 Operating cost per annum(OC) 24,000 10,000 15,000
3 Maintenance cost per annum(MC) 20,000 8,000 12,000
4 Life of the Machine(LI) 10 years 8 years 12 years
5 Scrap value at the end of Life of machine(S) 60,000 4,00,000 1,40,000

Ans: Life cycle costing(LCC)

Formula for Life cycle costing: LCC= I+(OC*LI+MC*LI)-S
I = Initial cost
OC=Operating cost per annum
MC=Maintenance cost per annum
S=Scrap value at the end of Life of machine,LI=Life of machine
Calculating the LCC of each manufacturer
I. KIRLOSKAR CUMMINS:
By Using the formula : LCC= I+(OC*LI+MC*LI) - S
I = 12,00,000/-
OC=24,000/-
MC=20,000/-
S=60,000/-, LI=10 Years
LCC=1200000+(24000*10+20000*10)-60000
=1200000+(440000)-60000
= 1580000

∴ Life cycle costing for Kirloskar cummins = 15,80,000/-

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II. GE ELECTRICALS:
By Using the formula : LCC= I+(OC*LI+MC*LI) - S
I = 16,00,000/-
OC=10,000/-
MC=8,000/-
S=4,00,000/-, LI=08 Years
LCC=1600000+(10000*8+8000*8)-400000
=1600000+(144000)-400000
= 1344000

∴ Life cycle costing for GE electrical s = 13,44,000/-

III. GREAVES COTTON:

By Using the formula : LCC= I+(OC*LI+MC*LI) - S
I = 14,00,000/-
OC=15,000/-
MC=12,000/-
S=1,40,000/-, LI=12 Years
LCC=1400000+(15000*12+12000*12)-140000
=1400000+(324000)-140000
= 1584000

∴ Life cycle costing for Greaves cotton = 15,84,000/-

Based on the two criteria

 To finalize on the Manufacturers based on Initial cost quoted. (First cost basis)
 To finalize on the manufacturer based on Life cycle costing.
1) Based on the first criteria the initial quote by Kirloskar cummins was lesser than the other
two manufactures, there fore if Maruti constructions giving based on the initial cost basis they
have to give order for Kirloskar cummins manufacturing company.
2) Based on the second criteria if Maruti constructions giving based on the life cycle costing
they have to give order for GE electrical’s manufacturing company based on the lowest life
cycle cost among the three manufacturers.

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