Life cycle costing

Besides product quality, cost is obviously a major factor in procurement decisions. The approach of life-cycle costing (LCC) considers the expenses of the customer along the entire life-cycle of the product. This includes capital costs (depreciation interest) and operation costs (energy, maintenance etc.). There is no canonical and standardized LCC concept for rail vehicles. Some LCC calculations include costs for operation personnel, costs of downtimes, costs for disposal, others don't.

LCC of rail vehicles

The following table gives an idea of the relevance of energy costs in LCC (Costs for personnel are excluded, since some of the sources specified them while others didn't).

Table 1: LCC for rail vehicles

	Locomotive for    passenger service*	Locomotive for    freight service*	High-speed train   (ICE 3)**
Investment	22,7 %	11,7 %	80,8 %
Energy	46,2 %	73,8 %	7,8 %
Maintenance	31,0 %	14,4 %	11,4 %

Source: * Trümpi 1998 ** Ernst 2001

The figures presented in table 1 have to be treated with caution. They are taken from different sources and are therefore based on somewhat different assumptions (interest rates, energy costs etc.). Moreover, the great differences between locomotives and ICE stems firstly from the fact that LCC of ICE refer to an entire train, whereas LCC for the locomotive excludes coaches/freight wagons, and secondly, that it is assumed that locomotives have a useful life of 25 years compared to 15 years for ICE 3.

Relevance of LCC in purchasing

Most purchasing contracts between operators and manufacturers contain LCC guarantees and foresee penalty clauses for the case of non-compliance. Nevertheless, in many cases purchasing costs rather than LCC are decisive in procurement.

While being theoretically the most complete cost indicator, LCC is difficult to handle and cannot be given in a general and straightforward manner. The reason is its strong dependence on operational conditions, which vary between operators and may not be predictable for the future.

LCC and energy efficiency

Most innovative energy efficiency technologies will improve LCC while raising purchasing costs. More technically speaking, any technology with a payback time shorter than the life-cycle will reduce LCC.

Even though LCC are often squarely in favour of energy efficient rolling stock, procurement decisions often prefer less efficient products due to lower initial investment. LCC-oriented procurement is therefore key factors for saving energy in railways.

The following evaluation refers to barriers and success factors for a more LCC-driven procurement.