Using life cycle costing (LCC) to select circular measures: A discussion and practical approach

Abstract

The implementation of circular measures in businesses constitutes a solution to future resource scarcity, which has yet to gain momentum. To select and implement such measures, companies, with limited resources need practical and easy-to-use guides that help them understand the financial outcomes while leading them towards more circular solutions. To this end, a guideline based on Lifecycle Costing (LCC), which fulfils the aforementioned criteria, has been created. The guideline directs the companies towards measures at the top of the CE hierarchy and LCC is used to assess profitability and provide information on material circularity. Its development follows the Design Research Methodology (DRM) and is based on using LCC at three case companies when selecting circular measures and on literature. Insights on the companies' process and decision criteria as well as the LCC results are presented. One identified critical criterion is the profitability of a circular measure, but comparing the LCC of alternatives is only an adequate measure of profitability, if the alternatives are functionally equivalent and of equal value for the customer, otherwise revenue and customer costs need to be compared as well. In addition, because labour is included in LCC, by categorizing the costs companies can be guided towards exchanging material costs with labour costs. Concerning circularity, in this comparative context, the difference in material cost between the alternatives can be used to measure circularity performance without additional effort. Finally, customization of products was also identified in the company research as a barrier to the implementation of various circular measures.

A Multi-Criteria Evaluation Method of Product-Level Circularity Strategies

“…Business decision-makers seeking to select circular strategies are not interested in simply measuring and understanding improved environmental performance or progress against the triple bottom line of sustainability, they need to understand the strategies' financial viability [21,55] and also their feasibility [22]. In fact, key practical challenges for businesses to implement circular economy strategies are customer demand and supply limitations, a lack of capital, regulatory uncertainty, and low or volatile material prices [12,56].…”

“…Although the evaluation of circularity strategies is crucial for selecting the most appropriate one, it can also help identify hotspots and areas of improvement in order to overcome some of the challenges with moving towards CE [58,59]. For example, Kambanou and Sakao [55] demonstrated how Life Cycle Costing (LCC) can help compare business-as-usual to a circular scenario while also showing where large material and energy costs occur in the product's or service's lifetime so that decision-makers can focus on replacing these high costs with labor costs, e.g., maintenance activities in the circular scenario.…”

Circular Economy Mainstream: an Analysis of Master Thesis and Dissertations

“…The Life Cycle Assessment (LCA) category is the basis for implementing circularity in products and materials, by proposing a consistent and results-oriented system for identifying possibilities for closing cycles (Kambanou & Sakao, 2020). For all products, results of manufacturing processes, strategies can be outlined to slow down the loss of value from the study of the stages of production, use and disposal.…”

“…Life cycle assessment in line with the principles of the circular economy allows strategies to be proposed for each stage of production and consumption. The actions are applicable to other circular premises, such as reuse, recycling or incineration (Kambanou & Sakao, 2020). For open strategies, such as recycling, products can be evaluated for reinsertion in the manufacture of other products, or for incorporation into the same product system.…”

Life Cycle Costing of Institutional Buildings in India: A Case Study of GRIHA-Certified CPWD Buildings

“…However, rigid pavements were found not to require expensive periodic maintenance. Kambanou et al [9] addressed the importance of applying LCC and how understanding the concept could help in better decision making in regards to which cost-effective alternatives could be used. Fuller et al [10] shed light on how LCC could assist in determining the best alternative that ensures the maximum cost saving in operation, maintenance, and repair costs.…”