in the Capital Assets Industry
SECOND EDITION
By Bob Prieto
Jupiter, Florida, USA
Life Cycle Analysis (LCA) is the assessment of the total cost or benefit of an asset over its lifetime. Also referred to as Whole Life Costing (WLC), LCA systematically considers all relevant costs and revenues associated with the acquisition, ownership and disposal of an asset. LCA supports a comprehensive assessment of sustainability by considering all benefits and impacts within a Triple Bottom Line Framework.
In this paper we will look at the components that comprise a comprehensive LCA and some of the factors to be considered in evaluating the life cycle cost or benefit of an asset. These costs or impacts as well as accrued benefits will also be considered from the perspective of the Environmental and Social Bottom Lines.
Subsequently, we will consider how to apply LCA in a program or business setting, where multiple projects or assets may be employed.
The intent of this paper is several fold.
First, to broaden the perspectives of program managers who increasingly are being tasked to consider more than initial delivery of a program. Rather they are increasingly focused on helping the facility’s owner meet broader and deeper strategic business objectives and as such factors such as availability, operability and maintainability are increasingly important.
The second intent of this paper is to provide insights to individual project managers as they consider project life cycle costs to ensure false tradeoffs are not made impacting reliable facility operation. In addition many projects are beginning to consider life cycle aspects other than cost and thus the triple bottom line focus embedded in this paper.
Finally, this paper is focused on facility owners and attempts to provide an initial roadmap with a triple bottom line focus, to help them plan and make the right kinds of cost vs. value tradeoffs as they implement their capital asset programs.
The LCA construct described in this paper also allows for the consideration of risk and uncertainty both with respect to revenues (benefits) and costs (impacts). The time value of money is also reflected but there has been no such consideration included along the environment and social bottom lines.
Why Life Cycle Analysis is Important to the Capital Asset Industry
Competitive pressures, shortages of capital and increased emphasis on sustainability all combine to shine a spotlight on the full life cycle impacts of the acquisition and operation of today’s capital assets. Whether it is an industrial facility with high levels of energy and water intensity, a facility with potential greenhouse gas or wastewater discharges, or a public infrastructure asset that must be operated and maintained over many decades, full life cycle analysis is essential to making better decisions.
Life Cycle Analysis vs. Life Cycle Cost Analysis
Life Cycle Analysis (LCA) employs a broader perspective than that traditionally encountered in an asset based Life Cycle Cost (LCC) analysis. This is illustrated in the figure below. LCA looks beyond just the life cycle cost of an asset, considering how revenues are influenced (both positively and negatively) by life-cycle performance characteristics, capturing the benefits of shorter design and construction schedules, longer service life-times and higher availability or flexibility of the asset. LCA also considers a range of indirect asset costs which may include factors such as land usage, applicable tax regime or financing structures available under different asset configurations. Other externalities are also considered in LCA which may include intangibles such as brand value, susceptibility to “Black Swan” type risks, and “strategic speed”.
Consideration of the environmental and social bottom lines must also be made from this broader perspective. ISO 14044, “Environmental management – Life cycle assessment – Requirements and guidelines” provides a good roadmap for considerations around the environmental bottom line. ISO 26000, “Guidance for social responsibility” outlines some of the core subjects and issues to be considered as part of LCA.
At each level in the LCA, risk and uncertainty need to be considered and careful attention paid to appropriate treatment of combined risk and risks which may reside in the “white space” between various LCA elements.
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Editor’s note: Second Editions are previously published papers that have continued relevance in today’s project management world, or which were originally published in conference proceedings or in a language other than English. Original publication acknowledged; authors retain copyright. This paper was originally published in PM World Today in March 2012. It is republished here with the author’s permission.
How to cite this paper: Prieto, R. (2012). Application of Life Cycle Analysis in the Capital Assets Industry, Second Edition, PM World Journal, Vol. X, Issue II, February 2021. Originally published in PM World Today, March 2012. Available online at https://pmworldlibrary.net/wp-content/uploads/2021/02/pmwj102-Feb2021-Prieto-life-cycle-analysis-in-capital-assets-industry.pdf
About the Author
Bob Prieto
Chairman & CEO
Strategic Program Management LLC
Jupiter, Florida, USA
Bob Prieto is a senior executive effective in shaping and executing business strategy and a recognized leader within the infrastructure, engineering and construction industries. Currently Bob heads his own management consulting practice, Strategic Program Management LLC. He previously served as a senior vice president of Fluor, one of the largest engineering and construction companies in the world. He focuses on the development and delivery of large, complex projects worldwide and consults with owners across all market sectors in the development of programmatic delivery strategies. He is author of nine books including “Strategic Program Management”, “The Giga Factor: Program Management in the Engineering and Construction Industry”, “Application of Life Cycle Analysis in the Capital Assets Industry”, “Capital Efficiency: Pull All the Levers” and, most recently, “Theory of Management of Large Complex Projects” published by the Construction Management Association of America (CMAA) as well as over 750 other papers and presentations.
Bob is an Independent Member of the Shareholder Committee of Mott MacDonald. He is a member of the ASCE Industry Leaders Council, National Academy of Construction, a Fellow of the Construction Management Association of America, Millennium Challenge Corporation Advisory Board and member of several university departmental and campus advisory boards. Bob served until 2006 as a U.S. presidential appointee to the Asia Pacific Economic Cooperation (APEC) Business Advisory Council (ABAC), working with U.S. and Asia-Pacific business leaders to shape the framework for trade and economic growth. He had previously served as both as Chairman of the Engineering and Construction Governors of the World Economic Forum and co-chair of the infrastructure task force formed after September 11th by the New York City Chamber of Commerce. Previously, he served as Chairman at Parsons Brinckerhoff (PB) and a non-executive director of Cardno (ASX)
Bob serves as an honorary global advisor for the PM World Journal and Library and can be contacted at rpstrategic@comcast.net.
To view other works by Bob Prieto, visit his author showcase in the PM World Library at https://pmworldlibrary.net/authors/bob-prieto/
