Options Development

Life cycle cost analysis - options development

Base case and alternative options

The life cycle cost analysis should compare a range of options, including retaining the existing equipment item or systems to deliver the service. This is sometimes referred to as the do nothing option and provides a base case to use as a comparator against alternative options.

The base case option should include all relevant costs associated with continuing the existing service delivery utilising the equipment objective of the LCC already in place. These costs may include refurbishments, maintenance, and the cost of implementing other risk mitigation strategies to maintain the existing service delivery.

Review the results of the life cycle cost analysis

The life cycle cost analysis process is built on a range of assumptions about current and future cash flows for various types of costs. Each element of the analysis has varying degrees of accuracy and potentially has a different impact on the overall analysis results.

It is therefore important to further explore the impact of changes in the values for key costs and how they impact the overall results. This exercise is usually referred to as a sensitivity analysis.

Sensitivity analysis involves repeating the evaluation of the life cycle cost model for a variety of alternative data values. Alternative values are chosen based on the level of uncertainty of the data item and are often structured around a range of values such as best case, most likely case, and worst case.