Life Cycle Costing System
Life Cycle Costing System
Life Cycle Costing System
Since both Environmental LCC and LCA are of a similar structure and can even be
interpreted together, it makes sense to conduct both in one software. Aim of this
paper is to investigate if, and how far, this is possible in SimaPro. This is
interesting since there is very little information on the topic so far.
designed
to
allow
leak-free
welding.This
reduces
costs
by
eliminating grinding and finishing operations (these operations would not help
the motor to function better anyway.)
1.3 Minimise the time to market
In a world where competitors watch each other keenly to see what new products
will be launched, it is vital to get any new product into the marketplace as
quickly as possible. The competitors will monitor each other closely so that they
can launch rival products as soon as possible in order to maintain profitability. It
is vital, therefore, for the first organisation to launch its product as quickly as
possible after the concept has been developed, so that it has as long as possible
to establish the product in the market and to make a profit before competition
increases. Often it is not so much costs that reduce profits as time wasted.
1.4 Maximise the length of the life cycle itself
Generally, the longer the life cycle, the greater the profit that will be generated,
assuming that production ceases once the product goes into decline and
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becomes unprofitable. One way to maximise the lifecycle is to get the product to
market as quickly as possible because this should maximise the time in which
the product generates a profit.
Another way of extending a product's life is to find other uses, or markets, for the
product. Other product uses may not be obvious when the product is still in its
planning stage and need to be planned and managed later on. On the other
hand, it may be possible to plan for a staggered entry into different markets at
the planning stage.
Many organisations stagger the launch of their products in different world
markets in order to reduce costs, increase revenue and prolong the overall life of
the product. A current example is the way in which new films are released in the
USA months before the UK launch.This is done to build up the enthusiasm for the
film and to increase revenues overall. Other companies may not have the funds
to launch worldwide at the same moment and may be forced to stagger it.
Skimming the market is another way to prolong life and to maximise the revenue
over the product's life.
2.0 Implementation of Life Cycle Costing (LCC)
Procurers of buildings generally wish to lower costs and increase profits (where
applicable). Decisions in all stages of the facilitys life (acquisition, operation,
maintenance, replacement and disposal as per ISO/DIS 15686-5 (ISO, 2006))
bear economic implications. Designers, engineers, contractors, managers, FM
operators and owners, all make decisions which affect economics of the
facility/project.
Implementation of the economic optimisation and evaluation to the whole
cradle to grave duration of the projects life has identified savings and benefits
which are particularly vigorously pursued in public procurement. In the UK,
bodies such as OGC (OGC, 2003 & 2005), HM Treasury (2000), NAO (2001) have
issued and endorsed several initiatives and policy reviews in order to change the
approach of the public sector to procuring construction projects. Other countries
like Norway have taken public procurement a stage further and have issued a
standard NS 3454 (1998) identifying and detailing the life cycle costs and
methods of economic evaluation.
It has been widely recognised that private sector uses the LCC calculations in a
much unstructured way, for their internal purposes. They rarely rely on it for the
environmental or quality choices. The implementation of LCC is driven by public
sector and is getting recognition and subsequently support in most EU member
countries. The effective implementation of life-cycle costing involves utilising a
thoughtful, comprehensive design along with quality material and construction
practices with selected environmental considerations. Level of detail in the LCC
calculations and extend of the model can render the LCC process as
overcomplicated and laborious which can defeat the ultimate purpose of it being
the strategy incorporated into the frequent decision-making process throughout
the life of the facility. After all, the ultimate goal for carrying out LCC calculations
is to aid decision-making in assessing and controlling costs and identifying cost
significant items. l Producing selection of work and expenditure planning profiles.
LCC allows for economical justification for the sustainability considerations, as
implementing LCC in planning for construction projects shows that, over a
projects life, incorporation.
3.0 Kaizen Costing System
Kaizen costing was originated as cost management practice in Japanese
companies after World War II. The strong point of kaizen costing comes from its
close connection with the profit planning process of the company; hence
company can examine its progress toward the long-term goals. Kaizen costing
activities involve continual small incremental product cost improvements in the
manufacturing phase of the product in contrast improvements in the design and
development phase. Kaizen costing is a method that ensures a product should
meet customer requirements for quality, functionality and price to maintain
product competitiveness (Ellram, 2000).
Monden (1995) stated that kaizen costing as the maintenance of present cost
levels for products presently being manufactured through systematic efforts to
achieve the desired cost level. Kaizen costing is the inclusive and continuous
approach to reduce costs after the production stage of a product. In kaizen
costing both the product and the production process are considered. Drury
(2008) argued that the focus of kaizen casting is on the production processes
and cost reductions are resulting mainly through the improved efficiency of the
production process.
Monden & Hamada (1991) defined kaizen costing as The system to support the
cost reduction process in the manufacturing phase of the existing model of
product and is also relevant to other downstream (non-manufacturing) costs
Kaizen costing can be defined as small improvement in cost of existing products
which is slowly performed with succeeding performances and it is maintained by
those persons who are participating in activities. Basically in kaizen costing a
cost reduction target is set which is then applied with the actual costs of the
previous year. In kaizen costing method cost reduction are planned with
continuing kaizen activities throughout the life cycle of product. Participation of
all members of the organization in kaizen targets can motivate employees
toward attaining the cost reduction targets.
Kaizen costing forces changes in the ways or production processes and it creates
a link between cost reduction activities and manufacturing processes to improve
value of product and earnings of firm. Kaizen costing maintains the current
production level and further tries to reduce the cost at expected level. Thus,
kaizen costing includes two main aspects, (1) maintenance of current production
conditions then (2) improvement in current production conditions.
3.1 Characteristics
Kaizen involves setting standards and then continually improving these
standards to achieve long-term sustainable improvements. The focus is
on eliminating
waste,
improving
processes
and
systems
and
improving
Kaizen Costing
Control location
Long term
Short term
Connection
between
cost Connection
is
made
through Connection
through
cost accounting
Fixed costs
Variable costs
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cost
Relate
transactions
to
accounting
Use
of
cost
drivers
performance measures
Nature of methodology
are
not
for
motivation
directly
and
The implementation of life cycle costing is good because can give advantage to
the company use this method. The LCC calculations in a much unstructured way,
for their internal purposes. They rarely rely on it for the environmental or quality
choices. Like is said before Level of detail in the LCC calculations and extend of
the model can render the LCC process as overcomplicated and laborious which
can defeat the ultimate purpose of it being the strategy incorporated into the
frequent decision-making process throughout the life of the facility. After all, the
ultimate goal for carrying out LCC calculations is to aid decision-making in
assessing and controlling costs and identifying cost significant items. l Producing
selection of work and expenditure planning profiles. LCC allows for economical
justification for the sustainability considerations, as implementing LCC in
planning for construction projects shows that, over a projects life, incorporation.
The implementation of Kaizen involves everyone - managers and workers - and
requires a permanent commitment to the Kaizen principles. It is not meant to be
implemented as a process, but rather to be lived at all levels of an organisation
as a philosophy. In order to achieve this, management must nevertheless master
a set of core elements and systems to realise the Kaizen strategy such as: plando-check-act cycles (PDCA), process versus result, putting quality first, speak
with data and the principle that the next process is the customer (Imai, 1997).
Implementation of particular improvement projects usually passes three stages:
identification of problems (matters for improvement) by employees and
formation of a habit to tackle them; conceptualisation of new ideas to improve
the process; and formal submitting of improvement suggestions. Further there
are five principles that must be implemented for a successful application of the
Kaizen concept the so-called 5S. The term 5S comes from the five Japanese
words that translate as: selection, systemic, cleaning, standardisation and
selfdiscipline (Karkoszka and Honorowicz, 2009).
8.0 Conclusion
The life-cycle costs approach offers a different perspective to look at problems in
the water and sanitation sector which entail complex and unpredictable change
processes with no easy solutions. Service level analysis, which encompasses
quality, quantity, access, use, reliability and environmental protection provided
to users, can lead to a more nuanced understanding of where underlying
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problems of coverage and slippage may lie. Existing approaches which compare
interventions in sanitation using engineering costs can be misleading. By
contrast, LCCA considers a wider range of costs and seeks to define real
lifespans and the number of users per system in cost comparisons. Using the lifecycle costs approach enables effective comparison of different WASH delivery
systems within a district, country or region, in part because comparisons are
based firmly on costs per services delivered, per year, per person. The LCCA can
be tailored to specific needs and critical issues in each country.
Kaizen is a way of thinking and this philosophy can be applied at any business. In
previous studies both kaizen and kaizen costing concepts were considered
similar but kaizen costing is different from kaizen. Kaizen costing is an important
branch of this concept and it follows the kaizen philosophy. Kaizen concept
includes continuous improvement in any field and kaizen costing is mainly
related with cost improvement. Kaizen costing is an emerging method for change
in an effective way and for continuous cost improvement. The secret of success
of Japanese firms was the application of Kaizen philosophy and kaizen costing is
accepted as improved part of this concept. Kaizen costing is implemented in
business with the determination of cost reduction targets and with the
involvement of all levels employees. Kaizen costing assists in continuous cost
reduction with positive changes in possible areas. Kaizen costing is also different
from innovation and cost control technique standard costing. Kaizen costing is
worldwide accepted by manufacturing firms as an effective and optimistic way of
working for continuous cost improvement.
9.0 References
Flanagan, R., Norman, G., Meadows, J. and Robinson, G. (1989) Life Cycle
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