The Life Cycle Management Navigator Life Cycle Costing

The Life Cycle Management Navigator Life Cycle Costing Training Session 12 Life Cycle Management Navigator: 12_PR_LCC 1 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing What? The LCC Message! Life Cycle Costing (LCC) helps you to. . . 1. reduce costs and 2. improve life cycle performance. . . through. . . • identification, • evaluation and • more accurate allocation of life cycle costs. Life Cycle Management Navigator: 12_PR_LCC 2 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing What? What are Life Cycle Costs? Life cycle costs can be. . . • potentially hidden costs; e. g. costs for purchasing, processing and disposing nonproduct output (NPO), costs for inefficient resource-use, insurance, monitoring, training. • contingent costs; e. g. costs for penalties, natural resource or personal injury damages, future compliance costs. • image and relationship costs. e. g. costs for advertising, lower earnings due to environmental image. Life Cycle Management Navigator: 12_PR_LCC 3 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing What? Functions of LCC intends to: • promote more accurate costing and pricing; • help identify potentials for cost reduction; • provide information on life cycle costs; • support (life cycle) controlling / decision-making. Life Cycle Management Navigator: 12_PR_LCC 4 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing LCC - A Management Accounting Tool LCC is primarily used • by management • for internal purposes • to support decisionmaking in various business areas. . . Where? Business decisions benefitting from LCC: • product design • process design • facility siting • procurement • processing • waste management • risk management • capital investments • costing and pricing Source: US EPA Life Cycle Management Navigator: 12_PR_LCC 5 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Why? Information Gap Disposal costs are just the tip of the iceberg costs for disposal other life cycle costs Life Cycle Management Navigator: 12_PR_LCC 6 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Information Gap and Resulting Problems Why? • Traditional accounting systems are incomplete in scope because they overlook important environmental costs (and potential cost savings and revenues), which can be a significant component of a company’s overall cost structure. • The failure to include environmental costs adequately in financial analyses has the effect of sending the wrong financial signals to managers. • When environmental costs are not adequately allocated, cross-subsidisation occurs between products. Life Cycle Management Navigator: 12_PR_LCC 7 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Why? Cost Reduction & Profitability Enhancement You pay at least 3 times for your non-product output (NPO) 1. Procurement 2. Processing 3. Disposal (Marketing) desired products � Input Output Throughput � costs of NPO + 10 -30% of total production costs unwanted NPO costs of NPO = Total costs of NPO Source: Fischer et al. Life Cycle Management Navigator: 12_PR_LCC 8 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Why? Some Figures • Kienbaum Consultants International estimates that LCC discovers cost reduction potentials of 1 -2% of total costs. • Gt. Z estimates that total NPO costs account for 10 -30% of total production costs and that LCC enables to reduce total production costs 1 -5% within one year. • Bosch-Siemens-Hausgeräte Gmb. H: In 3 years total waste reduction of 20%, reduction of waste for disposal of 45%. � A reduction of total costs by 1 -5% equals increased profits of 20 -100%! Life Cycle Management Navigator: 12_PR_LCC 9 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Why? Increased Profitability Additional profits of of 20 -100% Profit NPO costs Production and other costs Source: Wuppertal Institute Life Cycle Management Navigator: 12_PR_LCC 10 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Why? Benefits of LCC • cost reduction and avoidance; • profitability enhancement; • increased product quality; • staff motivation; • better decision-making including life cycle aspects; • satisfying information demands; • improvement of life cycle performance. � COMPETITIVE ADVANTAGE Life Cycle Management Navigator: 12_PR_LCC 11 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing How? Steps to take Non-product output (NPO) as a starting point. . . 1. Make your NPO transparent 3. Check results and review 2. Use improvement potentials Life Cycle Management Navigator: 12_PR_LCC 12 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing How? Step 1 1. Make your NPO transparent Key questions: • Do you know the amount of NPO your company “produces”? • Do you know the sources of NPO? Where does NPO arise? • Do you know the costs belonging to NPO? � Identify (most relevant) NPO flows and associated costs Life Cycle Management Navigator: 12_PR_LCC 13 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing How? Step 2 2. Use improvement potentials “Pick the low hanging fruits first!” Key questions: • Identification of most beneficial NPO flows. • Detailed description of those NPO flows in physical and monetary units. • Development and implementation of improvement measures. Life Cycle Management Navigator: 12_PR_LCC 14 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing How? Step 3 3. Check results and review Key elements: • Monitoring performance. • Evaluation of performance. • Development and implementation of further improvement measures. � Ensure continuous improvement Life Cycle Management Navigator: 12_PR_LCC 15 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing How? Further Opportunities Non-product output (NPO) NPO is a good starting point for implementing LCC especially in SMEs, but LCC offers more. . . Further opportunities • track other life cycle costs; e. g. inefficient resource-use • improve product design, investment decisions etc. Life Cycle Management Navigator: 12_PR_LCC 16 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing How? Further Opportunities In the building sector: Objective: Promoting a worldwide adoption of sustainable buildings and construction practices • Provide a common platform for addressing sustainability issues • Establish baselines based on the life cycle approach • Develop tools and stategies for achieving adoption of sustainable building practices • Implementation through pilot projects Source: www. unepsbci. org Life Cycle Management Navigator: 12_PR_LCC 17 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Further Opportunities Example Investment costs + Capital replacement costs - Residual value + Disposal costs + Energy and Water costs + Non-fuel operating, maintenance and repair costs + other costs i Life cycle costs All costs are discounted Source: www. wbdg. org Life Cycle Management Navigator: 12_PR_LCC 18 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME

Life Cycle Costing Tips for Action! Tips • It is not necessary to undertake a detailed material and energy flow analysis at the very beginning. • To become familiar with LCC you may first choose one type of NPO and figure out how LCC works. • Start with the most beneficial NPO flow(s). • Build up a team of several business units accompanying the entire LCC process. Life Cycle Management Navigator: 12_PR_LCC 19 CSCP, UNEP, WBCSD, WI, In. WEnt, UEAP ME