Life Cycle Costing : Supporting companies towards a circular economy

Abstract: Increased consumption has resulted in the depletion of non-renewable resources and an explosion in waste. A circular economy proposes to sustain economic growth but decouple it from resource consumption by keeping products and materials in the economy. Established companies have an important role to play because they can implement maintenance, repair, remanufacture, recycling and other circular measures to their offerings, thus facilitating their retention in the economy. When applying circular measures to existing products, their costs and revenues change across the lifecycle, sometimes significantly, thereby calling into question the financial viability of the more circular offering. Life cycle costing (LCC), an existing method for calculating the costs of a product or service across the lifecycle, can help companies take stock of these changes. LCC can also be used in conjunction with Life Cycle Assessment, a method for assessing the environmental impacts of a product or service across the lifecycle.The aim of this research, therefore, is to explore how LCC can be used to support established companies in selecting and implementing circular measures to their offerings. The research is conducted through case studies involving four companies, and data is collected through literature reviews, document and cost data sets analysis, interviews and focus groups. The findings are based on six publications.The identified uses for LCC go beyond the ones that lead to its selection and are commonly discussed in the literature. Firstly, the difference in material cost between the alternatives being compared can be calculated from the LCC results. This can be used as an indicator of the alternatives’ comparative circularity performance. LCC can also provide input to designers on which parts of the offering to prioritize applying a circular measure, as well as cost exchangeability. One of the most significant uses is that LCC can help create awareness, build up an understanding and provide a forum for discussing the challenges associated with implementing circular measures, such as the changing financial incentive structure, uncertainty, improvement areas for information systems and mismatches in stakeholders’ financial incentives. This use is critical in helping individuals and companies overcome mind-set and cultural barriers to a circular economy. Finally, LCC can spread the lifecycle idea and evidence the need for life cycle management (LCM), but may lead to a narrower understanding of the term life cycle and put the focus exclusively on resources rather than environmental impacts.Another finding is that companies, despite the many uses, may not use LCC because it contests elements of their extant practices, such as collective knowledge, mind-set of individuals and symbolic and material objects. It is the outcome of this contestation that will play a significant role in determining if LCC is used.The research also identifies methodological considerations, either generally applicable or specifically relating to the identified uses. For example, data displays and disseminating results are key when using LCC to understand challenges. A key methodological consideration when using LCC to compare alternatives from a financial perspective is whether the alternatives are of equal functionality and value for the customer. If not, the customer’s willingness to pay will change, and revenue will need to be calculated. Apart from companies, this is an important consideration for researchers using LCC to build up a body of knowledge on the economic benefits of more circular offerings compared to business-as-usual. Another issue concerns boundary setting and what to include in the life cycle, which should be decided in a multidisciplinary team. The same is recommended for the majority of methodological choices. Concerning future LCC methodological development, the variety of uses should be acknowledged and explicitly addressed. The reasons for not adopting LCC should also be addressed, and method development should consider how to support establishing LCC as a practice over time so that it improves and becomes routinized. This also means that companies should approach LCC in the same way. In line with this, more effort needs to be put into understanding why LCC is not adopted and developing the methodology to overcome the reasons. Finally, this research demonstrates that LCC can have more uses than at first apparent. Maybe this can inspire researchers to re-examine methods and tools and, in the spirit of a circular economy, try “to do more with less”.

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