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Dubai Electricity & Water Authority’s Cost Management Research Paper


Introduction

The hypothesis chosen for the paper is as follows: the information systems department is important for DEWA to obtain the correct cost management strategy for the assets life cycle.

Literature Review

Development Cost

Todic et al. (2016) discuss how the development of a product influences the stages of the product life cycle, emphasizing that the modern development of a product also involves a solution suitable for all stages of the life cycle. The authors develop a cost management model that allows managing the costs of an individual stage of the life cycle, i.e. at the developmental stage (where the design of the product can lead to almost 60% increase in costs), that will later help adopt solutions, which will support meeting the target profit (Todic et al., 2016).

At the same time, Prieto (2012) points out that design is a major driver in Life Cycle Analysis (LCA) assessments but its contributions to Life Cycle Cost (LCC) evaluations are usually smaller, and it is not the primary driver there. Design cost can be affected by design reuse (costs will drop, and design schedule will accelerate), work sharing, and what stage design should be taken to (about the design-build delivery).

Design factors considered in Life Cycle Analysis (LCA) are as follows: labor costs related to design, benefits of design standardization and reuse, time (design duration and phasing), the value of risk (e.g., labor availability risk or technology risks), and design uncertainties (for example, rework due to owner’s changes or late input) (Prieto 2012).

Wang and Hu (2011) examine the system of the Life Cycle Cost Management (LCC), dividing it into several stages and applying it to the construction industry: decision-making stage, design phase, bidding stage, and construction stage. At the same time, Li et al. (2016) do not examine the design stage as a separate one and include it in acquisition cost, which also covers the cost of supplying, cost of phasing equipment, cost of construction, cost of commissioning, cost of supervision, etc. Thus, although the development cost is mostly perceived as one of the first stages in LCC, other researchers, such as Li et al. (2016) do not separate it from construction and installation.

Production and Construction Cost

Production and construction cost (PCC) is perceived differently depending on the industry. For example, Woodward (1997), when examining the LCC outside of any industry, includes initial capital cost into this category and views purchase cost, acquisition cost, and installation/training/commissioning costs as parts of PCC. Asdrubali, Baldassarri, and Fthenakis (2013) divide the construction phase in materials production and building construction, which include raw material extraction, recycled material, transportation, manufacturing and transportation, excavation, assembly, and replacement respectively (p. 77). PCC is an important indicator of energy costs in the construction industry.

Karimpour et al. (2014) point out that 40-60% of total life cycle energy is used for the PCC stage. Thus, PCC does not only help determine acquisition costs and building construction but also focuses on energy use about the project’s lifecycle.

Operation and Support Cost

Operation and support cost (OSC) is often the most prolonged and resource-dependent phase in the life cycle. As Prieto (2012) notices, it can be affected by design, selected technologies, energy and/or water usage, and waste. Operation costs usually include pre-operation costs, process-related costs, IT-related costs, operating labor and associated costs, facility operations costs, and allocated site operating costs (Prieto, 2012).

An aspect that needs to be considered is the impact of equipment located in different areas on OCS. Camci (2013) argues that due to high competitiveness in the industrial environment, companies strive to achieve high production rates, safety, and low operation and support cost. For example, in the IT industry, real-time monitoring systems are used to forecast failure probabilities. These are located in different areas, and the maintainer needs time to travel between them. With the increased latency the chance of system failure also increases (Camci 2013). Although these systems are used to prevent maintenance and support failures, their malfunctioning leads to the increased cost of monitoring, reporting, and regulating.

Maintenance or support costs, together with operation cost, represent the most significant part of life cycle costs (Prieto 2012). Design decisions, quality of construction, and operating practices influence maintenance costs (Prieto 2012). These costs include maintenance management, routine management, servicing of a facility or project, periodic maintenance, repair, preventive maintenance, and capital refurbishment (Prieto 2012).

To attract customers, companies can use longer warranty terms, but these increase maintenance costs as they require “warranty servicing costs”, costs that rectify “a faulty item during the warranty period” (Shafiee & Chukova 2013, p. 561). Warranty costs can significantly influence a manufacturer’s profit; it is critical to ensure that reasonable decisions are made about product maintenance strategies (Shafiee & Chukova 2013). Otherwise, the reduction of operation and maintenance costs will result in increased warranty service costs, thus affecting the life cycle costs in general.

Retirement and Disposal Cost

The importance of retirement and disposal costs (RTC) is significant because these can vary depending on the industry, and some of the facilities require substantial investment in the disposal. For example, a nuclear power facility provides considerable waste disposal costs together with long-tail costs due to the specificity of waste it produces. Current policies that regulate environmental impact and waste disposal also influence RTC, as facilities spend additional investments in evaluating whether natural resource depletion is happening and how potential pollution problems can be addressed (Pellegrino et al. 2013; Rocha et al. 2015). Demolition and restoration are parts of RTC as well and require careful planning to avoid additional costs.

Conclusion

The importance of life cycle management is in its ability to divide the system cost into several stages; careful planning of those will result in better system functioning, reduced cost, and successful market penetration of the product. It can improve the decision-making process, increase the number of sustainable practices used, and help prevent risks during all four cost stages (Rocha et al. 2015). LCM assists in increasing the effectiveness of system assessment.

Dawei, L & Xuefeng, Z 2012, ‘Research on the application of life cycle cost management in the civil aircraft assembly line project’, Physics Procedia, vol. 25, no. 1, pp. 443-451.

Aim

The article aims to address the development of the aviation industry, stress problems that the industry currently experiences in cost control and decision making, and suggest life cycle cost management as a possible solution. The authors suggest that life cycle cost management can be a practical approach to control civil aircraft assembly line costs (Dawei & Xuefeng 2012). They emphasize the importance of each stage and argue that life cycle cost management is useful in evaluating the life cycle cost of big-sized civil aircraft as it covers a long lifespan of a product (Dawei & Xuefeng 2012). Particularly stressed are design and decision-making stages and their impact on the overall life cycle cost.

Summary

Dawei and Xuefeng (2012) provide a brief discussion of China’s aviation market demand and the development of the aviation industry, indicating that despite the Chinese aviation industry’s fast pace, both cost control and design process are insufficient. Feasibility studies are usually too vague to present any detailed estimations. The authors believe that life cycle cost management will be a suitable approach in addressing the needs of the Chinese aviation industry (Dawei and Xuefeng 2012).

It will emphasize the influence of technical design and construction drawing design, i.e., the preliminary stage, on project costs. It is also suggested to use the project quantity list quotation to control project costs fully. The life cycle cost management will mostly target the service life of machines and apparatus used in airports, as the service life of related facilities (e.g., landing fields) is longer than those of the equipment. With the help of the Monte Carlo Principle and Crystal Ball software, the need for life cycle cost management is justified.

Evaluation

The article provides substantial and detailed information about the implementation of life cycle cost management in the Chinese aircraft industry. It discusses the present issues briefly as the main focus of it is the life cycle cost management and its applicability to the civil aircraft assembly line. The article’s strengths include a detailed overview of the life cycle cost management and its applicability, sufficient analysis of it, and further suggestions that can be used by professionals in the industry. The article’s weaknesses are an undetailed discussion of current issues and problems, the lack of a literature review, methodology, design, etc., and the narrow use of obtained results (i.e., the data can be used in the Chinese aircraft industry only). Nevertheless, as the authors’ main focus is on the Chinese industry, the study’s results do not intend to be generalized.

Conclusion

The article addresses current issues identified in the Chinese aircraft industry and proposes a reasonable solution to those, namely, the use of life cycle cost management as a tool for improving the decision-making process and design stage. The article’s focus on design and decision-making is due to its influence on the overall project investment. Although the study does not provide extensive detail about issues identified in the Chinese aircraft industry, it describes the application of life cycle cost management rigorously and utilizes the Crystal Ball software for risk assessment.

Reference List

Asdrubali, F, Baldassarri, C & Fthenakis, V 2013, ‘Life cycle analysis in the construction sector: guiding the optimization of conventional Italian buildings’, Energy and Buildings, vol. 64, no.1, pp. 73-89.

Camci, F 2013, ‘The travelling maintainer problem: integration of condition-based maintenance with the travelling salesman problem’, Journal of the Operational Research Society, vol. 65, no. 9, pp. 1423-1436.

Dawei, L & Xuefeng, Z 2012, ‘Research on the application of life cycle cost management in the civil aircraft assembly line project’, Physics Procedia, vol. 25, no. 1, pp. 443-451.

Karimpour, M, Belusko, M, Xing, K & Bruno, F 2014, ‘Minimising the life cycle energy of buildings: review and analysis’, Building and Environment, vol. 73, no. 2, pp. 106-114.

Li, C, Wang, F, Zhang, D & Ye, X 2016, ‘Cost management for waste to energy systems using life cycle costing approach: a case study from China’, Journal of Renewable and Sustainable Energy, vol. 8, no.2, pp. 1-15.

Pellegrino, C, Cavagnis, P, Faleschini, F, & Brunelli, K 2013, ‘Properties of concretes with black/oxidizing electric arc furnace slag aggregate’, Cement and Concrete Composites, vol. 37, no. 3, pp. 232-240.

Prieto, R 2012, ‘Application of life cycle analysis in the capital assets industry’, PM World Today, vol. 14, no. 3, pp. 1-36.

Rocha, MSR, Ortega, LG, Kabe, YHO, Maria da Graça, CB, Duarte, F & Nerys, ML 2015, ‘Promoting life cycle thinking, life cycle assessment and life cycle management within business in Brazil’, Life Cycle Management, vol. 1, no.4, pp. 257-261.

Shafiee, M, & Chukova, S 2013, ‘Maintenance models in warranty: a literature review’, European Journal of Operational Research, vol. 229, no. 3, pp. 561-572.

Todic, V, Cosic, I, Maksimovic, R, Tasic, N, & Radakovic, N 2016, ‘Model for simulation of life cycle costs at the stage of product development’, International Journal of Simulation Modelling (IJSIMM), vol. 16, no. 1, pp. 108-120.

Wang, HP & Hu, YP 2011, ‘Research on the system of the construction project life cycle cost risk management’, Applied Mechanics and Materials, vol. 94, no. 1, p. 2329-2332.

Woodward, DG 1997, ‘Life cycle costing—theory, information acquisition and application’, International Journal of Project Management, vol. 15, no.6, pp. 335-344.

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