Chapter 6

Life Cycle Cost Analysis

Adolfo Crespo Márquez, Carlos Parra Márquez, Juan F. Gómez Fernández,

Mónica López Campos, and Vicente González-Prida Díaz

Abstract The chapter presents a generic model for assets maintenance manage-
ment. This model integrates other models found in the literature for built and in-use
assets, and consists of sequential management building blocks. More precisely we
want to show the reader the importance of selecting an appropriate method when
considering the estimation of the non-reliability cost of an asset. By doing so, we
show the impact of maintenance in life cycle costing and provide arguments to claim
about the needs for proper assets maintenance control.

6.1 Introduction
In this chapter, in the first part, we illustrate a process (Section 2) for built and in-
use assets maintenance management and to characterize maintenance engineering
techniques within that process. This has become a research topic and a fundamen-
tal question to reach the effectiveness and efficiency of maintenance management
and to fulfill enterprise objectives (Blanchard and Fabrycky 1998). We review a
model/process proposed in this chapter tries somehow to integrate other models
found in the literature (see for instance (Gelders et al 1994, Kaplan and Norton
1992) and presents a total of eight sequential management building blocks. Each
block, as will be discussed, is a key decision area for asset maintenance and life
cycle management.
In the second part of the chapter (Section 3), among referred decision areas and
according to the editorial team of this project, we have selected to explore methods
and models that may be used to do a suitable asset life cycle cost analysis. More
precisely we want to show the reader the importance of selecting an appropriate
method when considering the estimation of the non-reliability cost of an asset. By
doing so, we somehow show the impact of maintenance in life cycle costing and
provide arguments to claim about the needs for proper assets maintenance control.

A.C. Márquez (B)

Department of Industrial Management, School of Engineering, University of Seville,
Seville, Spain
e-mail: adolfo@esi.us.es

T. van der Lei et al. (eds.), Asset Management, DOI 10.1007/978-94-007-2724-3_6, 81


C Springer Science+Business Media B.V. 2012
82 A.C. Márquez et al.

6.2 Characterizing the Maintenance Management Process

The maintenance management process can be divided into two parts: the defini-
tion of the strategy, and the strategy implementation. The first part, conditions the
success of maintenance in an organization, determines the effectiveness of main-
tenance. Maintenance effectiveness allows the minimization of the maintenance
indirect costs (Vagliasindi 1989) associated with production losses and customer
dissatisfaction (Wireman 1998), reduces the overall company cost, obtained because
production capacity is available when needed (Palmer 1999).
The second part of the process, the implementation of the strategy will allow us
to minimize the maintenance direct cost (labour and other maintenance required
resources). Efficiency is acting or producing with minimum waste, expense, or
unnecessary effort.
Our model for maintenance management consists of eight sequential manage-
ment building blocks, as presented in Fig. 6.1. At the same time, our idea is that
there are maintenance engineering tools that may be used to improve each building
block decision making process (see Fig. 6.2).
Phase 1 tries to avoid that the maintenance objectives and strategy could be
inconsistent with the declared overall business strategy (Tsang et al. 1999). This

Effectiveness

Phase 1: Phase 3:
Phase 2:
Definition of the Immediate
Assets priority
maintenance intervention
and maintenance
objectives and on high impact
strategy definition
KPI’s weak points

Phase 8: Improvement Phase 4:

Continuous Design of
Improvement the preventive
and new maintenance
techniques plans and
utilization resources

Phase 7: Phase 6: Phase 5:

Asset life cycle Maintenance Preventive plan,
analysis execution schedule
and replacement assessment and resources
optimization and control optimization

Assessment Efficiency

Fig. 6.1 Maintenance management model (Adapted from Crespo Márquez 2007)
6 Life Cycle Cost Analysis 83

Effectiveness

Phase 1: Phase 2: Phase 3:

Balance Criticality Failure Root
Score Card Analysis Cause Analysis
(BSC) (CA) (FRCA)

Improvement
Phase 8:
Phase 4:
Total Productive
Reliability-
Maintenance
Centred
(TPM),
Maintenance
e-maintenance
(RCM)

Phase 6:
Phase 7: Reliability Phase 5:
Life Cycle Analysis (RA) Risk—Cost
Cost Analysis & Critical Path Optimization
(LCCA) Method (RCO)
(CPM)

Assessment Efficiency

Fig. 6.2 Sample of techniques within the maintenance management framework (Adapted from
Crespo Márquez 2007)

can indeed be done by introducing the Balanced Scorecard (BSC) (Moubray 1997).
The BSC is specific for the organization for which it is developed and allows the
creation of key performance indicators (KPIs) for measuring maintenance manage-
ment performance which are aligned to the organization’s strategic objectives (See
Fig. 6.3).
Unlike conventional measures which are control oriented, the Balanced
Scorecard puts overall strategy and vision at the centre and emphasizes on achieving
performance targets (Duffuaa 2000).
Once the Maintenance Objectives and Strategy are defined, there are a large
number of quantitative and qualitative techniques which attempt to provide a sys-
tematic basis for deciding what assets should have priority within a maintenance
management process (Phase 2). Most of the quantitative techniques use a varia-
tion of a concept known as the “probability/risk number” (PRN) (Campbell and
Jardine 2001). In professional risk assessments, risk combines the probability of
an event occurring with the impact that event would cause R = PxC, where P is
probability and C is consequence (Fig. 6.4). Risk assessment techniques can be
used to prioritize assets and to align maintenance actions to business targets at
any time.
84 A.C. Márquez et al.

Maintenance
Cost Effectiveness

Maintenance cost (%)

per unit produced (7%)

Maintenance
planning Quality Learning
and scheduling

PM Accomplishment
of criticality analysis Data integrity
Compliance
(Every 6 months) (95%)
(98%)

Fig. 6.3 A KPI and its functional indicators (Adapted from Crespo Márquez 2007)

Fig. 6.4 Generic criticality

4
matrix and assets location
F
r
e 3 1 2 1 3 Critical
q
u Semi-
Semi-critical
e 2
n 4 2 Non-
Non-critical
c
y
1 3

10 20 30 40 50
Consequence

As mentioned above, once there is a certain ranking of assets priority, we have to

set up the strategy to follow with each category of assets. Of course, this strategy will
be adjusted over time, and will consist of a course of action to address specific issues
for the emerging critical items under the new business conditions (see Fig. 6.5).
An example of detailed maintenance actions for category A assets — where we
try to reach optimal reliability, maintainability and availability levels — could be:
1) Apply FMECA for critical failure mode analysis; 2) Apply RCM for optimal
maintenance task selection; 3) Standardise maintenance tasks; 4) Analyse design
weaknesses and 5) Continue review FMECA and RCM.
Phase 3 deals with finding and eliminating, if possible, the causes of certain
repetitive failures that take place in high priority items. There are different methods
developed to carry out this weak point analysis, one of the most well known being
root-cause failure analysis (RCFA). This method consists of a series of actions taken
to find out why a particular failure or problem exists and to correct those causes.
6 Life Cycle Cost Analysis 85

Reach optimal reliability,

A maintainability and
availability levels

Maintenance strategy
Asset category
Ensure certain
B equipment availability
levels

C Sustain–improve
current situation

Fig. 6.5 Example of maintenance strategy definition for different category assets (Crespo Márquez
2007)

Phase 4 is devoted to the design of the preventive maintenance plan for a certain
system and this requires identifying its functions, the way these functions may fail
and then establish a set of applicable and effective preventive maintenance tasks,
based on considerations of system safety and economy. A formal method to do this
is the Reliability Centred Maintenance (RCM), as in Fig. 6.6.
Optimization of maintenance planning and scheduling (Phase 5) can be carried
out to enhance the effectiveness and efficiency of the maintenance policies resulting

Initial RCM
Phase Implementation phase
RCM
team Operational
conformation context Functional
Function Failure modes
definition failures
and asset
Criticality
selection
Analysis FMEA
(level?) Failure Mode and Effect of
Effects Analysis failure modes

Tool to answer the first 5

RCM Questions

Tool to answer Application of

the last 2 the RCM
RCM Questions logic

Maintenance
Final
plan
Phase documentation

Fig. 6.6 RCM implementation process

86 A.C. Márquez et al.

from an initial preventive maintenance plan and program design. Models to optimize
maintenance plan and schedules will vary depending on the time horizon of the
analysis (Mackenzie 1997).
Phase 6 deals with the execution of the maintenance activities once designed
planned and scheduled using techniques described for previous building blocks —.
This execution has to be evaluated and deviations controlled to continuously pur-
sue business targets and approach stretch values for key maintenance performance
indicators as selected by the organization.
A life cycle cost analysis (Phase 7) calculates the cost of an asset for its entire
life span (see Fig. 6.7). The analysis of a typical asset could include costs for plan-
ning, research and development, production, operation, maintenance and disposal.
A life cycle cost analysis is important when making decisions about capital equip-
ment (replacement or new acquisition) (Lee 2003), it reinforces the importance of
locked in costs, such as R&D, and it offers important benefits. We concentrate on
techniques for LCCA in Section 6.3 of this Chapter.
Finally, continuous improvement of maintenance management (Phase 8) will be
possible due to the utilization of emerging techniques and technologies in areas
that are considered to be of higher impact as a result of the previous steps of our
management process. Regarding the application of new technologies to mainte-
nance, the “e-maintenance” concept (Fig. 6.8) is put forward as a component of the
e-manufacturing concept (Woodhouse 1993), which profits from the emerging infor-
mation and communication technologies to implement a cooperative and distributed
multi-user environment. E-Maintenance can be defined (Duffuaa 2000) as a main-
tenance support which includes the resources, services and management necessary
to enable proactive decision process execution.

CAPEX OPEX
Capital Costs Operational Costs
Development Investment Operation
costs costs costs

Acquisition
Corrective Maintenance + Security, Environment, Production =
Non Reliability Costs = Risk
Design
Operation + Planned Maintenance Costs.
Investigation

Construction Remove
Time (years)

Fig. 6.7 Life cycle cost analysis

6 Life Cycle Cost Analysis 87

Conventional Maintenance E-maintenance

Top Management Top Management

Reports
Middle Management Middle Management
Precise &
Reports Login to
Concise
iScada Information
Maintenance Dept Maintenance Dept

Inspections/Complaints
Assets/ Assets/
Information Source Information Source

Fig. 6.8 Implementing e-maintenance (http://www.devicesworld.net)

6.3 Evaluating the Economic Impact of the Failure in the LCCA

Life cycle costing is a well-established methodology that takes into account all costs
arising during the life cycle of the asset. These costs can be classified as the ‘capi-
tal expenditure’ (CAPEX) incurred when the asset is purchased and the ‘operating
expenditure’ (OPEX) incurred throughout the asset’s life. LCCA is a method that
can be used, for instance, to evaluate alternative asset options (Blanchard 2001),
or/and assets maintenance management strategies (Crespo Márquez 2007).
For all these potential purposes, a key aspect to introduce in a LCCA is the failure
costs. In order to model that cost we will now introduce the Non-homogeneous
Poisson Process model (NHPP, repairable systems). With the NHPP model we can
estimate the frequency of failures and the impact that could cause the diverse failures
in the total cost of ownership of a production asset. This section also contains a case
of study to illustrate the above mentioned concepts.

6.3.1 Characterizing the Total Costs of Failures (Non Reliability)

Life cycle cost analysis (LCCA) can be defined (Woodhouse 1993) as a systematic
process of technical-economical evaluation that considers, in a simultaneous way,
economic and reliability aspects of an asset, quantifying their real impact along its
life cycle cost. Reliability is related to operational continuity. We normally say that
a production system is “reliable” when it is able to accomplish its function in a
secure and efficient way along its life cycle. Low reliability causes normally high
costs, mainly associated to the asset function recovery (direct costs) besides the
corresponding escalated impact in the production process (penalization costs). The
totals costs of non reliability can be then classified as follows (Barlow et al 1993,
Ruff and Paasch 1993 and Woodhouse 1991):
88 A.C. Márquez et al.

• Costs for penalization: Downtime, opportunity losses/deferred production, pro-

duction losses (unavailability),operational losses, impact in the quality, impact in
security and environment.
• Costs for corrective maintenance: Manpower, direct costs related with the man-
power (own or hired) in the event of a non planned action; and materials
and replacement parts, direct costs related with the consumable parts and the
replacements used in the event of an unplanned action.

6.3.2 Using NHPP for Reliability Analysis

NHPP is a stochastic discrete process where, in its initial formulation, we assume

that the equipment is “as bad as old” (ABAO) operating condition after a repair (this
is also referred as minimal repair in the maintenance modelling literature (Ascher
and Feingold 1984, Crow 1974). In this process the probability of occurrence of n
failures in any interval [t1, t2] has a Poisson distribution with the mean (Ascher and
Feingold 1984):
 t1
−
λ= λ (t) dt (1)
t2

Where λ(t) is the rate of occurrence of failures (ROCOF).

Therefore, according to the Poisson process:
 n   
t2 t
t1 λ (t) dt exp − t12 λ (t) dt
Pr [N (t2 ) − N (t1 ) = n] = (2)
n!
Where n = 0, 1, 2,. . . are the total expected number of failures in the time interval
[t1,t2].
Let us represent with  (t) the expected number of failures in a time interval
[0, t], then

t
 (t) = λ (t) dt (3)
0

One of the most common forms of ROCOF used in reliability analysis of repairable
systems is the Power Law Model (Ascher and Feingold 1984, Crow 1974), that
estimates the failure rate as follows:

β  t β−1
λ (t) = (4)
α α
This form comes from the assumption that the inter-arrival times between successive
failures follow a conditional Weibull probability density function, with parame-
ters α and β. The Weibull distribution is typically used in maintenance area due
6 Life Cycle Cost Analysis 89

Fig. 6.9 Conditional

probability of occurrence of
failure (Yañez 2002)

to its flexibility and applicability to various failure processes (however, solutions to

Gamma and Log-normal distributions are also possible). As we know by reliability
theory, λ(t) is a conditional probability for which we can consider the following
definition (see Fig. 6.9):

F (t) − F (t1 ) 1 − R (t) − 1 + R (t) R (t)

P (T ≤ t |T > t1 ) = = =1− (5)
R (t1 ) R (t1 ) R (t1 )
where F(t) and R(t) are the probability of failure and the reliability at the
respective times. Assuming a Weibull distribution, Eq. (5) yields:
 β  t β
t i−1 i
F (ti ) = 1 − exp − (6)
α α

Therefore, the conditional Weibull density function is:


β  ti β−1 ti−1 β  ti β
f (ti ) = . exp − (7)
α α α α
Now we will use this function in order to obtain the maximum likelihood (ML)
estimators of the parameters of the Power Law model. For the case of the NHPP,
different expressions for the likelihood function may be obtained. We will use
expression based on estimations at a time t after the occurrence of the last fail-
ure and before the occurrence of the next failure, see details on these expressions in
(Modarres et al. 1999).

6.3.2.1 Time Terminated NHPP Maximum Likelihood Estimators

In the case of time terminated repairable components, the maximum likelihood
function L can be expressed as:

n
L= f (ti ) = f (t1 ) f (ti ) R (tn |t ) (8)
i=1 i=2
90 A.C. Márquez et al.

Therefore:
   β 
β  t1 β−1 t1
L= exp −
α α α
   n  
β n−1
n  β−1
t1   ti−1 β  ti β (9)
× exp −
α α α α
i=2 i=2

Then the ML estimators for the parameters are calculated. The results are ([Ascher
and Feingold 1984] and [Crow 1974]):

tn
α̂ = 1
(10)
nβ
n
β̂ =   (11)

n tn
ln
i=1 ti

Where ti is the time at which the ith failure occurs, tn is the total time where the last
failure occurred, and n is the total number of failures. The total expected number of
failures in the time interval [tn, tn+s] by the Weibull cumulative intensity function
is (Modarres et al. 1999):

1  
 (tn , tn+s ) = β
(tn + ts )β − (tn )β (12)
α
Where ts is the time after the last failure occurred in the one which needs to be
considered the number of failures and tn is:


n
tn = ti (13)
i=1

6.3.3 A NHPP Model for Failure Cost Assessment in LCA

Our previous NHPP model structure can be used for the quantification of the costs
of failures in the LCCA (cost of non reliability (Asiedu and Gu 1998). With this
model we propose to assess the impact of main failures on a production system
LCC structure by following the next procedure:

1. Identify for each alternative to evaluate the main types of failures. This way for
certain equipment there will be f = 1. . . F types of failures.
2. Determine for the n (total of failures), the times to failures tf . This information
will be gathered by the designer based on records of failures, databases and/or
experience of maintenance and operations personnel.
6 Life Cycle Cost Analysis 91

3. Calculate the Costs for failures Cf ($/failure). These costs include: costs of
penalization for production loss and operational impact Cp ($/hour), costs of
maintenance corrective Cc ($/hour) and the mean time to repair MTTR (hours).
The expression used to estimate the Cf is shown next:

Cf = (Cp + Cc) × MTTR (14)

4. Define the expected frequency of failures per year  (tn , tn+s ). This frequency
is assumed as a constant value per year for the expected cycle of useful life.
The  (tn , tn+s ) is calculated starting from the expression (12). This process is
carried out starting from the times to failures registered tf by failure type (step 2).
The parameters α and β, are set starting from the following expressions (10) and
(11). In the expression (12), ts it will be a year (1 year) or equivalent units (8760
hours, 365 days, 12 months, etc.). This time ts represents the value for estimate
de frequency of failures per year.
5. Calculate the total costs per failures per year TCPf , generated by the different
events of stops in the production, operations, environment and security, with the
following expression:


F
TCPf =  (tn , tn+s ) × Cf (15)
f

6. The obtained equivalent annual total cost, represents the probable value of money
that will be needed every year to pay the problems of reliability caused by the
event of failure, during the years of expected useful life.
7. Calculate the total costs per failures in present value PTCPf . Given a yearly
value TCPf , the quantity of money in the present (today) that needs to be
saved, to be able to pay this annuity for the expected number of years of use-
ful life (T), for a discount rate (i). The expression used to estimate the PTCPf is
shown next:

(1 + i)T − 1
PTCPf = TCPf × (16)
i × (1 + i)T

Once this cost is estimated, it is added to the rest of the evaluated costs (investment,
planned maintenance, operations, etc.). Finally, the total cost is calculated in present
value for the selected discount rate and the expected years of useful life. Different
results can be obtained, for instance for different assets options or/and maintenance
strategy options.

6.3.4 Case Study

The following case study proposes the evaluation of the economic impact of the
failures using the method NHPP. The analysis was developed for the oil company
92 A.C. Márquez et al.

Table 6.1 Economical data

Data Option A Option B

I: Investment 1.100.000 $ 900.000 $

OPC: operationals costs 100.000 $/year 120.000 $/year
PRC: preventive costs 60.000 $/year 40.000 $/year
OVC: overhauls costs 100.000 $ every 5 years 80.000 $ every 5 years
i: interest 10% 10%
T: expected useful life 15 years 15 years

PETRONOX (contractor of Petróleos of Venezuela), located in the field of gas and

petroleum Naricual II, in Monagas, Venezuela. In general terms, it is requires to
install a compression system to manage a flow average of 20 millions of cubic feet
of gas per day. The organization PETRONOX, evaluates the information of two
suppliers of compressors. Next, are shown the data of costs of: initial investment,
operation and maintenance for the two options to evaluate (value estimated by the
suppliers, see Table 6.1):

• Option A:
Reciprocant Compressor, 2900-3200 hp, caudal: 20 millions of feet cubic per day
• Option B:
Reciprocant Compressor, 2810-3130 hp, caudal: 20 millions of feet cubic per day

With this information the organization PETRONOX carried out a first economic
LCCA and a comparison made among the two alternatives, in this first evaluation,
no failure cost analysis was considered and results are presented in Table 6.2:
In Table 6.2, the oil company doesn’t consider the possible costs of failures
events. The option B results to be the best economic alternative (more economic
alternative for a lifespan period of 15 years). There is a difference of approximately:
224.917,133 $ between the two alternatives (this quantity would be the poten-
tial saving to select the option B, without considering the possible costs for
failures).

Table 6.2 Economical results without to evaluate the costs per failures

Results Option A Option B

1) I: Invesment 1.100.000 $ 900.000 $

2) OPC(P): operationals costs in present value 760.607,951 $ 912.729,541 $
3) PRC(P): preventive costs in present value 456.364,77 $ 304.243,18 $
4) OVC(P): overhauls costs in present value, t = 5 years 62.092, 1323 $ 49.673,7058 $
5) OVC(P): overhauls costs in present value, t = 10 years 38.554,3289 $ 30.843,4632 $
6) OVC(P): overhauls costs in present value, t = 15 years 23.939,2049 $ 19.151,3639 $
TLCC(P): Total Life Cycle Costs in present value, i: 10%, 2.441.558,387 $ 2.216.641,254 $
T: 15 years (Sum 1. . .6)
6 Life Cycle Cost Analysis 93

Later on, a proposal consisting on the evaluation of the same figures taking into
consideration now the failure costs was made to the organization. It was suggested
using a NHPP model for this evaluation, the total expected number of failures the
interval of time [tn, tn+s] is estimated by the NHPP stochastic model (Weibull
cumulative intensity function) (Modarres et al. 1999). Next, are shown the data of
costs and times of failures to be used inside the NHPP model (the data of times to
failures tf were gathered by PETRONOX of two similar compression systems that
operate under very similar conditions in those that will work the compressor to be
selected):
With the information of the Table 6.3, the equation (12) was used to calcu-
late the frequency of failures per year  (tn , tn+s ). The parameters α and β of the
Distribution of Weibull contained in the equation (12) were calculated from the
equations (10) and (11). The total costs for failures per year TCPf were calculated
from the equations (14) and (15); these costs are converted to present value PTCPf
with the equation (16). Next, are shown the results of the frequency of failures and
the total costs for failures for year obtained starting from the NHPP model, for the
two evaluated options (see Table 6.4):
Later on, a second LCC economic evaluation was carried out including the results
of costs of failures obtained from the NHPP model. The results are presented in
Table 6.5:
In the results of this second evaluation (see Table 6.5), the total costs for failures
are included in present value PTCPf. Notice that now Option A turns out to be the
best economic alternative, with a difference of approximately: 196.581,368 $ (this
quantity would be the potential saving if selecting the option A instead of B). An
important aspect to be considered in this analysis, is that PTCPf category of cost

Table 6.3 Failure costs and maintainability/reliability data

Data Option A Option B

Cp ($/hour) 6.000 6.000

Cc ($/hour) 700 400
MTTR (hours) 9 8
tf (months) 5, 7, 3, 7, 2, 4, 3, 5, 8, 9, 2, 4, 6, 3, 2, 3, 3, 5, 6, 6, 5, 6, 5, 6, 4, 3, 2,
4, 2, 4, 3, 8, 9 2, 2, 2, 3, 2, 2, 3, 2, 2, 3, 3
tn (total of months) 98 82
n (total of failures) 20 24

Table 6.4 Results from NHPP model

Results Option A Option B

α 6,97832 6,13985
β 1,13382 1,22614
 (tn , tn+s ) = failures/year 2,7987 = 2,8 4,3751 = 4,38
TCPf = $/year 168.840 224.256
PTCPf = $ (i = 10%, T = 15 years) 1.284.210,46 1.705.708,97
94 A.C. Márquez et al.

Table 6.5 Economical results with the costs per failures

Results Option A Option B

1) I: Invesment 1.100.000 $ 900.000 $

2) OPC(P): operationals costs in present value 760.607,951 $ 912.729,541 $
3) PRC(P): preventives costs in present value 456.364,77 $ 304.243,18 $
4) OVC(P): overhauls costs in present value, t = 5 years 62.092, 1323 $ 49.673,7058 $
5) OVC(P): overhauls costs in present value, t = 10 years 38.554,3289 $ 30.843,4632 $
6) OVC(P): overhauls costs in present value, t = 15 years 23.939,2049 $ 19.151,3639 $
7) PTCPf: total costs per failures in present value 1.284.210,46 $ 1.705.708,97 $
TLCC(P): Total Life Cycle Costs in present value, i: 10%, 3.725.768,851 $ 3.922.350,22 $
T: 15 years (Sum 1. . .7)
PTCPf / TLCC(P) = % (total costs per failures / total life 34,46% 43.48%
cycle costs)

turns out to be the highest economic factor, with more weight, inside the process of
the two alternatives comparison. Specifically, this category of costs represents the
43,48% (Option B) and the 34,46% (Option A) of the total LCC of these two assets
(with an interest rate of 10% and a prospective cycle of life of 15 years).
Finally, as per previous results discussion, PETRONOX decided to consider
failures cost analysis in their LCCA. Additionally, the organization PETRONOX
decided to develop an internal procedure allowing the evaluation of reliability
opportunity cost, this procedure would be used in a continuous and obligatory basis
every time different options are analyzed inside the processes of: design, selection,
substitution and/or purchase of assets.

6.3.4.1 Limitations of the NHPP Proposed Model

The analysis of the failure is an important facet in the development of maintenance
strategy in the life cycle cost analysis of the asset. Only by properly understanding
the mechanism of failure, through the modeling of failure data, can a proper mainte-
nance plan and an analysis of costs be developed (Limnios and Nikulin 2000). This
is normally done by means of probabilistic analysis of the failure data. From this,
conclusions can be reached regarding the effectiveness and efficiency of preventive
replacement (and overhaul) as well as that of predictive maintenance. The optimal
frequency of maintenance can also be established by using well developed opti-
mization models. These optimize outputs, such as profit, cost and availability. The
problem with this approach is that it assumes that all repairable systems are repaired
to the ‘good-as-new’ condition at each repair occasion. Maintenance practice has
learnt, however, that in many cases equipment slowly degrades even while being
properly maintained (including part replacement and periodic overhaul). The result
of this is that failure data sets often display degradation. This renders conventional
probabilistic analysis useless.
The NHPP model has proved to provide good results even for realistic situations
with better-than-old but worse-than-new repairs (Hurtado et al. 2005). Based on
this, and given its conservative nature and manageable mathematical expressions,
6 Life Cycle Cost Analysis 95

the NHPP was selected for this particular work. The NHPP models can be consid-
ered as simple curve-fitting approach that can be easily understood and implemented
by software engineers and developers (Limnios and Nikulin 2000). It is also this
type of models that have been used by practitioners in most cases. On the other
hand, without an in-depth understanding, the models and analysis are more likely
to be misused and further analysis, which could been possible are not carried
out. There is a need for more in depth study of NHPP model and their effec-
tiveness in predicting future failure behaviour. Most of current research focuses
on developing more complex models, see other models found in the literature
(Xie and Ho 1999, Pham 1999). However more research is needed with regard
to model selection. When comparing models, the focus should be on the pre-
diction rather than fitting as a model can fit the past data correctly, but has a
poor predictive ability. Knafl and Morgan (1996) provide some initial discussion
on this area.
The model described above has advantages and limitations. In general, the more
realistic is the model, the more complex are the mathematical expression involved.
The main strengths and weakness of this model are summarized next:

Strengths:
• It is a useful and quite simple model to represent equipment under aging
(deterioration).
• Involves relatively simple mathematical expressions.
• It is a conservative approach and in most cases provides results very similar to
those of more complex models like Generalized Renewal Process (Hurtado et al.
2005).

Weakness:
• Is not adequate to simulate repair actions that restore the unit to conditions better
than new or worse than old.

6.4 Conclusions

The orientation of this chapter is towards maintenance management models, and

within them, to the presentation of techniques to consider LCCA within the process
(Phase) of assets maintenance assessment, control and improvement.
We have shown how the reliability factor and its impact on costs can be critical
for LCCA and may influence in final results produced with this analysis for assets
options and/or for maintenance management strategy alternatives.
Prevision of unexpected failure events and their cost is crucial for correct decision
making and profitability of production process. Improvements of process reliability
(quality of the design, used technology, technical complexity, frequency of failures,
costs of preventive/corrective maintenance, maintainability levels and accessibility)
96 A.C. Márquez et al.

may have a great impact on the total cost of the life cycle of the asset, and on the
possible expectations to extend the useful life of the assets to reasonable costs.

6.5 Future Trends

We believe that, within LCCA techniques, there is a potential area of research related
to the optimization of the reliability impact evaluation techniques on LCC. Some
interesting trends that we have identified are as follows:

• Stochastic methods see (Tijms 1986, Karyagina et al. 1998, Vasiliy 2007).
Table 6.6 shows the stochastic processes used in reliability investigations of
repairable systems, with their possibilities and limits (Modarres et al. 1999).
• Advanced maintenance optimization using genetic algorithms see (Martorell
et al. 2000, Martorell et al. 2005).

Table 6.6 Stochastic processes used in reliability analysis of repairable systems

Background/
Stochastic process Can be used Difficulty

Renewal process Spare parts provisioning in the Renewal theory/

case of arbitrary failure rates Medium
and negligible replacement or
repair time (Poisson process)
Alternating renewal process One-item repairable (renewable) Renewal theory/
structure with arbitrary failure Medium
and repair rates
Markov process (MP) Systems of arbitrary structure Differential equations or
whose elements have constant integral equations/
failure and repair rates during Low
the stay time (sojourn time) in
every state (not necessarily at a
state change, e.g. because of
load sharing)
Some systems whose elements
have constant or Erlangian
failure rates (Erlang distributed
failure-free times) and arbitrary
repair rates
Semi-Markov process (SMP) Systems with only one repair crew, Integral equations/
arbitrary structure, and whose Medium
elements have constant failure
rates and arbitrary repair rates
Semi-Regenerative process Systems of arbitrary structure Integral
whose elements have arbitrary equations/
failure and repair rates High
Nonregenerative process Partial diff. eq.; case by base
sol./High to very high
6 Life Cycle Cost Analysis 97

• Monte Carlo simulation techniques see (Barriger et al. 1997, Barringer and Weber
1996, Maniskiy and Krivtsov 1998).
• Advanced Reliability distribution analysis see (Elsayed 1996, Ireson et al. 1996,
Scarf 1997, Ebeling 1997 and Dhillon 1999).
• Markov simulation methods see (Roca 1987, Kijima and Sumita 1987, Kijima
1997, Bloch-Mercier 2000).
• Reliability methods in phase of design see (Goel et al. 2003, Ajah et al. 2007).

Finally, it is not feasible to develop a unique LCCA model, which suits all the
requirements. However, it is possible to develop more elaborate models to address
specific needs such as a reliability cost-effective asset development.
Acknowledgements This research is funded by the Spanish Department of Science and
Innovation project DPI2008-01012 (Modelling e-maintenance policies for the improvement of
production systems dependability and eco-efficiency).

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