The importance of lifecycle costing

Written by: Jon Garnaut

In a previous article, we discussed the importance of understanding the true cost of a maintenance strategy from a budget perspective and how a zero-based budget (ZBB) provides valuable insights, enabling asset-intensive organisations to make informed decisions. In this article, we will dive deeper into the ZBB makeup, discussing the importance of capturing the complete lifecycle of an asset and how Orien makes it possible.

Understanding the zero-based budget

The ZBB considers all maintenance and operational costs associated with keeping an asset performing according to an organisation's expectations. The ZBB has several components that are pieces to the final puzzle:

  • Primary activities
  • Secondary activities
  • Project and custom activities

When building the ZBB, we often see only primary activities accounted for. They consist of planned and known maintenance and operational activities derived from maintenance strategies. While important, primary activities alone will not paint a true picture of an assets' lifecycle cost.

Secondary activities

Secondary activities are often driven from primary activities and represent a follow-up action required, often rectifying a condition found. While secondary activities are not always planned for within a given budget period, we know that these overhaul/replacement tasks will be required during the assets' normal operation and need to be accounted for. Now, without a future-seeing crystal ball, there is no way to determine the secondary activities' precise timing. Still, an informed budget decision can be made with a good strategy and asset understanding.

Project and custom activities

The often-overlooked considerations in the ZBB are project and custom activities. Operating contexts for many organisations change in response to economic factors from commodity prices to global pandemics. In turn, demand for and lifecycle of assets change. Some examples of this include previously unprofitable businesses now being ramped up and lives extended or the inverse, assets needing to be put into care and maintenance.

The project and custom activities component of ZBB captures budget requirements that are not necessarily part of the operational and maintenance strategies. For example, project costs can be influenced by the need for system upgrades as a result of other operational changes (e.g. automation, extended life of assets, electrical feed upgrades), the need for action from a regulatory body (e.g. emission requirements), or a range of other organisational factors. Similarly, custom costs are needed if an activity is required to be budgeted outside of standard operating strategy contexts, (e.g. change of ground engaging tool (GET) requirements in response to an operational change in excavating fleets).

By considering all of these activities as part of the ZBB, organisations can be confident that the complete lifecycle is managed and budgeted.

How can Orien help produce a ZBB?

ZBB creation can be daunting for organisations with maintenance strategies and CMMS data across many systems or excel sheets. Even those with a clear and concise understanding of their maintenance strategies struggle to extend this to a ZBB.

Orien provides a platform to streamline the ZBB journey and focus on the core maintenance strategies and activities that underpin the asset. It enables isolated focus on individual activities and guides their development to ensure all budgeting requirements are considered during the activity creation. The tool provides a standardised approach to all activity resourcing definitions, ensuring all budgeting information is accurate. The ZBB creation through Orien is a simple one-click generation directly from the strategies and provides the complete operational and capital expenditure budget for the asset's lifecycle. Orien even allows for activities to be capitalised and separated within the ZBB, allowing organisations to effectively control their capital requirements over the lifecycle.

Once the ZBB is generated, Orien allows decision-makers to investigate further and probe the data to get the detail they need. Orien also enables all data in the ZBB to be exported or directly configured to be utilised by other software. The Orien ZBB is also the starting point for simulating the Total Cost of Ownership which gives further insight into the Lifecycle Cost modelling.

ZBB in action

Zero-based budgeting has been a core service delivered by Ausenco for many years. For example, one of our long-term clients, an Australian-based bulk material handling and shipping company, has been able to produce and update their ZBB lifecycle budgets across their 6 operations. During development workshops and annual budget review meetings, the long-term sustaining capital costs and one-off system upgrade costs (e.g., for PLC equipment) are a key component of consideration. With these long-term operating and capital costs considered in the budget, the client can forecast their 15-year costs and effectively plan and make informed decisions well ahead of time.

By implementing ZBB, asset-intensive organisations can make informed budgeting decisions with confidence. Using Orien, we streamline this process and make it easy to capture primary, secondary, project, and custom activities to showcase an asset's lifecycle cost accurately.

Our team of experts are ready to help, reach out to Jon Garnaut to learn more.