Lifecycle costs as a competitive edge

Life Cycle Costing (LCC) is a tool for calculating the costs of a product for its lifecycle, including the procurement price and other operating costs, and also other costs of procurement or disposal. Hansel has developed a model that can serve as a comparison tool for joint procurements.

Although LCC calculators for public procurements are available, it has not been possible to make more extensive use of them to date.
For instance, the EU’s Green Public Procurement (GPP) projects have produced tools for comparing lifecycle costs, but they are poorly suited to procurements under framework agreements. Their use in framework agreement tendering processes is complicated by, for instance, the fact that customers have different approaches to usage.

Lifecycle costs according to usage – the new calculation model sparks interest

The use of lifecycle costs as a selection criterion is a responsible act, especially when the external impacts on the environment can be taken into account. In addition, choosing the alternative with the lowest lifecycle costs steers towards energy-efficient, long-lasting and durable products and services.

Hansel thus created its own LCC model with the Finnish Environment Institute for use in tendering. The creation of this model was part of the activities of the steering group for innovative public clean-tech procurements.

Colours matter

The development of the LCC model started in 2015 and it was piloted in 2016 in two framework agreements: competitive tenders for printers and presentation technology. The cost of maintaining wearing parts of the hardware in both procurement categories can vary substantially: For instance, colour cartridges, printer drums and video projector bulbs need to be replaced and maintained. The model accounts for the sourcing and replacement of multifunction machine parts by the organisation itself and maintenance services over their lifecycle.

Comparisons show that variations in the energy costs of different IT equipment are not as large as the costs of wearing parts, because the default value for energy consumption is low. In the framework agreement for presentation technology, the manufacturer’s figures for peak electricity consumption are used as given. The LCC also does not cover recycling services, in which there are no significant differences between suppliers. Of course, responsibility factors are taken into consideration; for instance, electronics scrap may not be transported out of the EU.

The impact of the calculation model has been simulated in different IT equipment. Comparing the values of earlier framework suppliers shows that LCC influences their ranking. In other words, one can become a framework supplier thanks to low lifecycle costs. High lifecycle costs in turn might disqualify the supplier from the agreement.

Largest benefits in customer-specific use

The first model trials confirmed that it is worth using the model when possible in procurements in other categories as well. The calculation model is ideal for long-term, energy-intensive investments where usage methods do not vary significantly. One example is a railway project in which railway tracks are constructed for decades of use.

Comparison of lifecycle costs also benefits the customer in smaller procurements. In fact, the greatest motive for developing LCC has been to benefit the end customers. Comparisons are rational in customer-specific tendering and simplified tendering processes within framework agreements (mini-tenders) when the comparison figures are based on actual usage situations of the customer.