Benefit for customer

Cost reduction. Products that are optimised to the customer's operational structures.

Benefit for manufacturer

Focus on LCC allows manufacturers of railway technologies to develop solutions taylored to the operation needs of the customer. This improves customer benefit and creates competitive advantages.

Spreading of LCC to several companies

The concept of LCC collects all costs caused by an investment into one single cost. However today's European railways are vertically disintegrated, i.e. the former state-owned companies are split up into functional sub-companies or independent companies for operation, infrastructure, energy etc. LCC of a rail vehicle are not paid by one company but are split up in a complicated manner between these companies. The train operator usually bears the purchasing and maintenance costs. As far as energy and track wear etc. are concerned, the operator only pays a fee that doesn't always reflect the real costs. Therefore the operator has no incentive to purchase more energy-efficient stock.

Short-sighted management and controlling

Despite the fact that railway vehicles have an economic lifetime of 20 – 40 years, a payback time of 5 years is seen by many managers as far too long and hardly justifiable. The pressure for cost efficiency and budget balance is high and often keeps decision makers from choosing the option which is cheapest in long-term perspective.

Difficult verification

LCC guarantees have only limited value since it is difficult for operators to prove non-compliance. Actual LCC are difficult to verify and strongly depend on operation context.

No standard

There is no standardized LCC model accepted by all manufacturers and by railways. Therefore LCC guaranatees given by different companies often lack comparability. For example there is no reference cycle for energy efficiency of new stock.

Functional, LCC-oriented specifications

It is important to include LCC considerations already during the concept phase of a new purchasing project. Calls for tender should generally focus on functional specifications (including operation context) rather than giving a product description with design specifications. This creates the basis for manufacturers to develop new innovative solutions and to compete for the lowest LCC.

Bonus penalty rules

Procurement contracts often foresee penalty payments for the case that certain requirements (e.g. maintenance costs) are not met by manufacturers. So-called bonus penalty rules, i.e. an additional agreement on bonus payments for the case of "over-performance", could improve the role of energy-relevant or other LCC-relevant parameters such as efficiency of traction equipment or mass per seat in the design of railway vehicles.

Integrated service contracts

The delimitation and attribution of LCC to an individual product is all the more difficult, the less contract partners have an influence on the individual cost components. Investment models where the vehicle supplier also accounts for maintenance and disposal clearly favor an LCC focus. In the field of energy costs such an integrated service approach is of course impossible to realise.

Standardized LCC model

A standard way of calculating and verifying LCC could make competition for a purchasing project more transparent and raise the significance of LCC in procurement. The elaboration of an LCC standard would require a joint effort by major manufacturing companies and railway operators. This could also include the definition of a reference cycle for energy efficiency.