Life cycle cost for modification project

Abstract

Life Cycle Costing is a commonly used method for evaluating various alternatives and hence, choosing the best solution. This method is not fully utilized in the Front End Loading studies performed by one of the operating company in cooperation with their contractor for the modification of their existing facilities in an oil field. In most of the cases, the proposed technical solutions are often chosen mainly based on the initial acquisition cost, technical compliances and previous experiences. The complete life cycle cost, which shall typically include solution integration, operation and maintenance cost are often neglected. It is important to consider the complete life cycle cost as much as possible. Without having thorough understanding of the associated cost incurred in the life cycle, it is just like viewing only the top of the iceberg by overlooking the hidden cost. The operating company aims to implement the life cycle cost calculation as part of the standard procedures while performing studies in the early phase for their modification projects. It forms a basis for selecting the best technical solutions economically. The purpose of this paper is to propose a practical solution and life cycle cost evaluation for selecting the best technical solution for modification projects. It enables the company to properly document the criteria and calculation as supporting document for decision making in the project. A practical case study is carried out and simplified LCC calculation method is proposed. It is also recommended that LCC analysis to be extended to bid evaluation while purchasing new critical equipment during the project execution phase.