CVS CVS Cost Analysis and Life Cycle Costing Questions and Answers 1 — Questions and Answers
Question 1: Life Cycle Cost (LCC) analysis in Value Methodology includes which major cost categories?
- Initial capital cost only
- Acquisition, operation, maintenance, and disposal costs over the item's useful life (Correct answer)
- Labor costs and material costs during construction
- Only recurring annual operating expenses
Correct answer: Acquisition, operation, maintenance, and disposal costs over the item's useful life
LCC encompasses all costs from acquisition through disposal, giving a complete picture of the true economic impact of a design decision.
Question 2: Why is Life Cycle Cost analysis important in a VM study?
- It allows teams to ignore upfront costs
- It ensures that low initial cost alternatives are not selected if they have high operating or maintenance costs (Correct answer)
- It simplifies the approval process for project managers
- It replaces the need for function analysis
Correct answer: It ensures that low initial cost alternatives are not selected if they have high operating or maintenance costs
LCC prevents decisions that minimize first cost at the expense of much higher long-term costs, ensuring true value is optimized.
Question 3: In the context of VM cost analysis, 'function cost' refers to:
- The salary of the team member responsible for a function
- The portion of total project cost attributable to performing a specific function (Correct answer)
- The cost to maintain a function after project completion
- The cost of the physical component that houses multiple functions
Correct answer: The portion of total project cost attributable to performing a specific function
Function cost allocates total system cost to individual functions, enabling the team to identify which functions consume disproportionate resources.
Question 4: Which mathematical technique is commonly used in LCC analysis to compare costs occurring at different points in time?
- Linear interpolation
- Net Present Value (NPV) or Present Worth analysis (Correct answer)
- Return on Equity (ROE) calculation
- Monte Carlo simulation only
Correct answer: Net Present Value (NPV) or Present Worth analysis
NPV/Present Worth analysis discounts future costs to today's dollars, allowing fair comparison of alternatives with different cost timing.
Question 5: A 'should-cost' model in VM is used to:
- Estimate what a function or product should cost based on competitive benchmarks and first principles (Correct answer)
- Calculate the actual cost incurred during construction
- Determine team compensation rates for a VM workshop
- Set the maximum allowable project budget
Correct answer: Estimate what a function or product should cost based on competitive benchmarks and first principles
Should-cost modeling establishes an independent cost target based on function worth and market data, independent of contractor or vendor quotes.
Question 6: In VM cost analysis, 'cost avoidance' differs from 'cost savings' in that:
- Cost avoidance is always larger than cost savings
- Cost avoidance prevents future costs from occurring, while cost savings reduce existing costs (Correct answer)
- Cost savings apply only to labor costs
- They are interchangeable terms in modern VM practice
Correct answer: Cost avoidance prevents future costs from occurring, while cost savings reduce existing costs
Cost avoidance refers to preventing a cost that would otherwise be incurred, whereas cost savings reduce a cost that is already being incurred.
CVS CVS Cost Analysis and Life Cycle Costing Questions and Answers 1
Life Cycle Cost (LCC) analysis in Value Methodology includes which major cost categories?