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Guide to Mobile Equipment Life Cycle Costing
M.G. Currie, February 2009, Pages: 73
This guide explains how to apply Life Cycle Costing (LCC) methods to mobile equipment, and to assess these investments using reliable financial modeling and sensitivity analysis. Particular attention will be given to key operating variables and local conditions, and the ways in which these factors influence asset performance.
The guide will be of particular interest to purchasing, maintenance, engineering and production professionals from mining companies that operate fleets of large mobile machinery. It will also be of interest to suppliers and financial analysts who wish to gain a better understanding of mining economics.
The objective of this guide is to take LCC concepts beyond the point-of-sale to achieve the lowest cost and most productive operating strategy for mobile equipment.
Readers will learn the principles underlying LCC methodology, and how to adapt them to actual operations and risks associated with those conditions. They should also be able to perform common investment analysis in order to justify management decisions, and utilize LCC methods to create budgets, estimate resources and evaluate maintenance tactics.
The scope of this guide includes mobile fleet assets and the capital, operating and maintenance inputs that comprise a conventional Life Cycle Cost model. For illustrative purposes the examples in this course will be haul trucks, though the concepts and analysis can be applied to any type of mobile equipment, including shovels, bulldozers, graders, wheel loaders, wheel dozers, excavators and drills.
The nature of mobile equipment is that its cost to operate and maintain is highly localized. The costs shown in this guide are representative of actual expenditure in the field, though care should be taken to reference all numbers to local circumstances.
All costs, including capital, are presented as pre-tax US Dollar cash flow.
1 ABOUT THIS DOCUMENT
2 LCC PRINCIPLES
2.1 WHAT IS LCC?
2.2 LCC AND MOBILE EQUIPMENT
2.3 BASIC LCC MODEL
2.3.1 Term and Utilization
2.3.3 Operating Costs
2.4 DETAILED LCC MODELS
3.1 ECONOMIC RISK
3.1.2 Foreign Exchange
3.2 OPERATING RISK
3.2.4 Maintenance Strategy
3.2.5 Other Factors
3.3 SUPPLIER RISK
3.3.1 Factory-owned Dealers
3.3.2 Independent Dealer Network
3.3.3 Factory-owned Services
3.3.4 Mixed Distribution
3.4 INCORPORATING RISK INTO LCC MODELS
3.4.1 Cost Escalation
3.4.4 Risk Assessment
4 INVESTMENT ANALYSIS
4.1 GROSS COST AND COST PER TON
4.2 DISCOUNTED CASH FLOW
5.2 RISK ASSESSMENTS
5.3 SAMPLE EXERCISE SOLUTIONS
6 LIFE CYCLE COSTING APPLICATION
6.2 RESOURCE FORECASTS
6.2.1 Major Component Schedules
6.2.2 Workforce Estimates
6.2.3 Shop Requirements
6.2.4 Machine Availability
6.3 EVALUATE MAINTENANCE TACTICS
6.3.1 Change in Component Strategy
6.3.2 Investment in New Technology
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