Activity-based life cycle cost analysis as an alternative to conventional LCC in engineering design

Abstract

Petroleum exploration and production in the Arctic region is becoming of increasing interest as the world needs more energy. However, since there is little experience and data on Arctic oil and gas production, the design of production facilities and equipment to be used in the Arctic region is fraught with high cost and risk. Conventional life cycle costing (LCC) approaches have been discussed in literature for many years, but it is difficult to perform such analysis due to the need for a large amount of data and the inherent uncertainty in the results. There is also little evidence in the literature on the practical usage of LCC. In this paper we discuss the differences between conventional LCC and activity-based LCC (AB-LCC) cost systems. Moreover, based on an analytical comparison between the two methodologies we find that the AB-LCC methodology may be a better alternative to use for cost analysis in the design of production facilities to be used in unfamiliar environments such as the Arctic. A simple example is used to demonstrate the differences between conventional LCC and AB-LCC analysis.