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A.K.S. Jardine

1

Life Cycle Cost Analysis & Fleet

Retention Strategies

February, 2008

Andrew K S Jardine

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A.K.S. JARDINE 2

$$

Time

total cost

operations

depreciation

inventory

downtime

Life Cycle Model

Source: H. Greene & R.E. Knorr, Managing Public Equipment, American Public WorksAssociation, Kansas City, 1989.

maintenance

Economic Life

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A.K.S. JARDINE 4

Fleet Statistics

Utilization: 110,000 km/year per tractor

Fleet size: 17

Tractor weight: 23,000

Current policy: 5 year replacement cycle

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A.K.S. JARDINE 5

Title: BEST ESTIMATE RESALE VALUES

Number of Years: 5

Acquisition Cost: 85000

Age of

Vehicle

O&M Cost

(In Todays

Dollars)

Rate for

Cash Flow

Discounting

Trade-in

Value

EAC

Best Year

Highlighted

1 Year Old

2 Year Old3 Year Old

4 Year Old

5 Year Old

29352

4524652626

53324

42363

10%

10%10%

10%

10%

60000

4000025000

20000

15000

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A.K.S. JARDINE 6

60

65

70

75

80

1 2 3 4 5

Age of Trucks (years)

EAC - $$ (Thousands)

DATA ANALYSIS:Equivalent Annual Cost vs Age of Trucks

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A.K.S. JARDINE 7

Parks & Recreation Department: Dump Trucks

In this case, optimal replacement age is after 7 years of operation

Determining Optimal Replacement Age for Municipal Dump Trucks

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A.K.S. JARDINE 8

A Further Example:

In this case, optimal replacement age is after 5 years of operation

Determining Optimal Replacement Age for 4x4 Pick-up Trucks

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A.K.S. JARDINE

By: Cheung- Ki Derek Siu Monique Ka Yee Ho

Optimizing Economic LifeDecisions for a Bus Fleets

Municipal Bus Fleet

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A.K.S. JARDINE 10

Utilization Trend Curve

Usage(km

)

Bus Number

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A.K.S. JARDINE 11

Equivalent Annual Cost (EAC)

Eq

uivalentAnnualCo

st($/year)

Year of Service

Minimum EAC in year 13

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A.K.S. JARDINE 12

Interpretation of Results

The optimal solutions (13 years) correspondingEAC is between $116,000 and $125,000.

The current replacement policy (18 years) has acorresponding EAC between $120,000 and$129,000.

Therefore, the potential cost savings are about$216,000/year (= $4,000 54 vehicles)

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A.K.S. JARDINE 13

Caterpillar 992D Wheel Loader

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A.K.S. JARDINE 14

(Years)

R A-Sp,T A-Sn A-Sn

0 1 2 T-1 T 1 2 n-1 n n+1 n+2 n-1 2n

Cp,1 Cp,2 Cp,3 Cp,T Ct,1 Ct,2 Ct,3 Ct,n Ct,1 Ct,2 Ct,3 Ct,n

Today

Cash Flows Associated with Acquiring NewEquipment at Time T

Repair vs. Replace

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A.K.S. JARDINE 15

The Result

Purchase price: $ = $ 1,083,233 (Unit operational)

Rebuild Cost = $ 489,970

Change-over time to new loader, T

T = 0 T = 1 T = 2 T = 3

Overall

EAC ($)

449,074 471,725 459,319 450,217

Minimum

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A.K.S. JARDINE 16

The Life Cycle Cost Iceberg

Source: B.S. Blanchard and W.J. Fabrycky, Systems Engineering and Analysis, Prentice Hall, 1990