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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
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