Designing a hybrid methodology for the Life Cycle Valuation of capital goods

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Designing

a

hybrid

methodology

for

the

Life

Cycle

Valuation

of

capital

goods

W. Haanstra

*

,

A.J.J.

Braaksma,

L.A.M.

van

Dongen

DepartmentofDesignProduction&Management,UniversityofTwente,DeHorst2,7522LWEnschede,TheNetherlands

ARTICLE INFO Articlehistory: Availableonlinexxx

Keywords: LifeCycleValuation LifeCycleAssessment LifeCycleCosting Physicalassets Decision-making AssetManagement ISO55000 LifeCyclePlanning Capitalgoods

ABSTRACT

Decision-makersareincreasinglyrequiredtoassessthevaluecreatedbycomplexphysicalsystemsover theirentirelifecycle.ThecommonlyappliedLifeCycleCostingapproachfailstofullycapturevalue,asit is primarilyaimed atcosts, takes areductionist approach,anddoes not accountforcontinuously changingindustrialenvironments.Toaddresstheseshortcomings,theLifeCycleValuationmethodology isproposed,designedasahybridofLCCandLifeCycleAssessment.LCVfacilitatestheassessmentofcosts andbeneﬁtsfrommultiplecomplementaryperspectivesandcanbetailoredtospeciﬁcdecisioncontexts, asdemonstratedbyapplyingLCVduringAssetManagementdecision-making.

creativecommons.org/licenses/by-nc-nd/4.0/).

Introduction

Generatingvaluefromenduringphysicalassets

Enduring physical assets form the backbone of many manufacturing systems. Machinery, production lines, buildings, and infrastructure need to perform in safe, cost-effective, and reliablewaysinordertoproduceasteadysupplyofhigh-quality products[1].Thelifespansoftheseassetsarecommonlyexpressed in decades, rather thanyears, asis commonfor describing the lifespansofproductsthattheseassetsproduce.Furthermore,these capitalassetsareveryexpensivetoacquireorreplace.Forphysical assets,themajorityoftheLifeCycleCosts(LCC)areattributedto the in-servicephase of these systems, withmaintenance costs oftenexceedingtheinitialcapitalinvestmentoverthelifetimeof theasset[2].Thismeansthataconsiderationoftheentirelifecycle isindispensablewhencommittingtocostlydecisionsthataffect,or are affectedby,theselong-livedassets. Tocomprehendthefull potentialofphysicalassets,adeepandthoroughunderstandingof theircompletelifetimesisneeded[3].

Therefore,asignificantchallengeinmanagingtheselong-lived assetsliesinthefactthat,despiteasoundunderstandingofthe lifecycle of the assetitself, the context in which it operates is subjecttocontinuouschange.Developmentsingovernance,(geo) politics, the economy, society, demography, and technology all need to be taken into account when managing assets [4]. In automotiveindustries,forexample,strategicandtactical decision-makingand flexibility areessential for adapting manufacturing systems to ever-changing environments and for warranting optimalperformance[5].“Becauseofincreasingmarketdynamics andcompetition,companiesinthemanufacturingindustryhaveto considertheflexibilityoftheirmanufacturingsysteminearlyplanning phases and especially ininvestment decisions” [6]. Among these investmentdecisionsarethose concerningmid-lifeupgradesof capitalequipment,whichcanbeusedtoextendtheusefullifeand functionality of the asset, adding value during this period [7]. Furthermore, many capital goods consist of, or are part of, interconnectedand/orcomplexsystemsthatareoftenbeingused forpurposesbeyondtheiroriginalmission[8].Assuch,thereisan increasingemphasisonmakingdecisionsthatnotonlytakethe costs,potential benefits,andlonglifespanintoaccountbutalso need to include the systems perspective alongside long-term strategic objectives. Therefore, rational and lifecycle-oriented decision-making surrounding these physical systems is crucial, especially given the lasting and considerable consequences of committing to these types of decisions. Comprehensive and rigorousLCCapplicationsarerare,eveninliterature[9].Because *Correspondingauthor.

E-mailaddresses:w.haanstra@utwente.nl(W. Haanstra),

a.j.j.braaksma@utwente.nl(A.J.J.Braaksma),l.a.m.vandongen@utwente.nl (L.A.M. vanDongen).

https://doi.org/10.1016/j.cirpj.2021.01.017

CIRP

Journal

of

Manufacturing

Science

and

Technology

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LCCisoftenconsideredtobetoolaborious[10].Inpractice,many ﬁrms, therefore, seem to rely on relatively simple payback calculationstomakeassetreplacementdecisions.

Asset Management (AM) is a commonly used systematic approachaimedattherealizationofvaluefromphysicalsystems over their entire lifecycle. It involves the balancing of costs, opportunities,andrisksagainstthedesiredperformanceofassets, to achieve the organizational objectives of the managing organization(ISO55000,[11]).Astrikingexampleofthechallenge ofmanaginglong-livedphysicalassetsinarapidlychangingfuture contextisfoundintheEnergyTransition.Themaincharacteristics of this transitionin Europe arethe liberalizationof theenergy sector,theshifttowardsrenewableenergysources, decentraliza-tion of energyproduction, and changesin energy consumption patterns[12].Inenergyproduction,theshareofwindenergyhas grown exponentiallyover the last twodecades and is likelyto continue to do so [2]. The emergence of distributed energy resources,such asdistributed generation,local storage,electric vehicles, and demand response, is driving changes in power systems [13]. These changes mean that the requirements and needsoffutureenergysystemsaredifferentfromthoseofthepast. Decisionsattheindividualassetlifecyclelevel thereforehavea larger consequence on the possibilities and limitations of the surroundingarchitecturethanever.Furthermore,alargepartof the infrastructure and industrial assets in Western Europe is currently approaching its expected end-of-life [14,15]. Despite theirage,assets designedandbuiltdecadesagostillfulﬁllvital functionsinmanufacturing,aswellasinsocietyatlarge[1].The combinationofconstantinvestmentneedsandlong-term socio-technicaldevelopmentsoftheenergytransitionrequiresrational decision-makingandalong-termstrategicperspective.

Problemidentiﬁcation

Life CycleCosting (LCC) is a commonlyused instrument for supporting investment decisions concerning physical systems withlonglifespans.LCCallowsfortheassessmentandreductionof costsintheshort,medium,andlong-term,makingitanessential instrument forlong-termplanning[16,17].LCCcanthereforebe regarded as a major contributor to successful Asset Life Cycle Management [18]. From its early beginnings in the 1950s, the understandingofLCChasprogressedfromarelatively straightfor-wardcostcalculationconcepttoamanagementsysteminitsown right.WhiteandOstwald[19],forexample,deﬁneLCCas“thesum ofallfundsexpendedinsupportoftheitemfromitsconceptionand fabricationthroughitsoperationtotheendofitsusefullife”.[20],on theotherhand,regardLCCas“amanagerialsystemthatisfocusedon the modeling,quantiﬁcation, andcontrol of all the coststhat are presentduringthedesignandoperationstageswhichendswith[the] disposalofaphysicalasset.”

From the perspective of AM decision-making, however, the application of LCC is not without limitations. LCC is already criticized becauseit hasdifﬁculties assessing complexsystems, challengesindatacollection,lackoftransparencyandtrust,and long-term uncertainties, and thus poses both practical and methodologicalchallengesforthedevelopmentofProductService Systems [21–23].Similarchallengesalsoformlimitations when using LCC tosupportAM centereddecisions. The ﬁrstof these limitationsisthatAMisfocusedonrealizingvaluefromphysical assets[24],whereastheprinciplesofLCCaremainlyfocusedon thecostsbornebyassetowners.Therefore,LCCdoesnotinclude theconsiderationofvariousstakeholdersassociatedwiththeasset

[25]. AM supports the realization of value while balancing ﬁnancial,environmental,andsocialcosts,risk,qualityofservice, and performancerelatedtoassets(ISO55000,[11]).This value-orientedperspectiveshiftsthefocusoflifecyclecostanalysisfrom

theminimization of the costof ownership of a product tothe perceptionofserviceandmaintenancecostas‘designvariables’in ordertoformatrade-offwithproductfeaturesandperformances

[22].Realizingvaluebymeansof trade-offscanbeachievedin multipleways,suchasvalue-drivenmaintenanceplanning[26], future-proofingassetsbyapplyingchangeablesystemdesign[27], functionalproduct(re)design[28]orthedevelopmentof sustain-able business models [29]. Despite the existence of these approaches, however, the concept of value remains largely subjective,makingitdifficultforindividualstoarticulateexactly whatmakesacomplexsystemvaluable[30].Forapplicationsin AM,the_financialperspective,therefore,mustbesupplementedby a non-financial perspective to forma satisfactorybasis for the evaluationofassetvalue.

ThesecondlimitationisthatLCCassessmentstendtotakea reductionistapproach,focusingononecostobjectatatime,such assingleprocessesorstand-aloneinstancesofproducts,services, ortime[31].Focusingonasinglecostobjectatatimedoesnot provideanappropriatecostestimationbecausemany manufactur-ingsystemsconsistofinterconnectedandinteractingcostobjects

[22,23].Furthermore,AM organizationsmaychoosetomanage theirassetsinthreedistinctways:(1)attheindividualassetlevel, (2)inportfoliosofmultipleassetsofsimilartypesorclasses,and (3) in groupings of assets that comprise an asset system (ISO 55000,[11]).Thelattertwoofthesemanagementperspectivesalso seemincompatiblewiththereductionistnatureofLCC.Rodaand Garetti[18]arguethat“inordertosupportmanagerialdecisions,LCC modelsalsoneedtoassumeasimilarlyintegratedandsystemicfocus asAM”.

Thethirdandlastlimitationisthatdespitethelongandrich historyofLCC,ageneralapplicationframeworkforLCCappearsto bemissing. In both theoryand practice, there is a shortageof guidingprinciplesandstandardsforLCC[9].UnliketheLifeCycle Assessment (LCA)methodology, LCC is notstructured in accor-dancewithaninternationalstandard,withtheexceptionoftheISO 15686-5:2008standardwhichonlyappliestothebuildingsector

[32].Additionally,theIEC60300-3-3standard ondependability management[33]standardprovidesageneralintroductiontothe conceptofLCCbutispredominantlyaimedatassessingthecost associated with the dependability of an item. Kambanou and Lindahl [23] indicate that LCC is always tailored to fulfill the requirementsofitsintendeduse, andthat thistailoringwillbe reflected in the cost object, scope, and boundaries of the assessment. Likewise,it appears thatthe guidelinesonhow to applyLCCarealsomostlytailoredtospecificapplicationcontexts, and that a more generally applicable guideline for LCC is still missing. A potential avenue to explore is to look at the aforementionedframeworkforLCA.Rebitzerand Hunkeler[34]

indicatethat“ageneralLCCguidance[framework],similartotheISO 14040seriesforLCA,seemstobedesirable”.Swarretal.[35]also state that there needs to be a consensus on an international standardforapplyingLCC,whichparallelstheISO14040standard forLCA.HunkelerandRebitzer[36]calledfortheprioritizationand developmentofanaccepted andstandardized methodologyfor LCC, a code of practice, an international standard for the framework,andindicatedtheneedformethodological compati-bilityofLCCwithLCA.

Researchmotivation

Decisionsthatshapethelifecycleofcapitalgoods,suchasthe physicalsystemsinuseinenergygrids,haveanenormousimpact onAMorganizationsandforsocietyasawhole.LCC,thoughwidely adopted,ismethodologically limitedin supportingthetypesof decisionsthat,forexample,AMorganizationsarenowrequiredto makeintheever-changingcontextoftheenergytransition.Given

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thelackofagenericguidingframeworkforLCCandtheexistence ofconceptualoverlapbetweenLCCandLCA,variousresearchers seetheapplicationoftheprinciplesandframeworkofLCAasa promisingstartingpointforthedevelopmentofguidingprinciples forLCC,whichcanbeusedtoimprovethemethodology.Rebitzer et al.[37]arguethat theLifeCycleInventory (LCI)ofLCAisan “excellent basis for allocating LCC to the entire lifecycle of a product.Huppesetal.[38]indicatethat“theproceduralstandards forLCAasspeciﬁedinISO14040may,withslightadaptations,beused forLCCaswell”.ISO14040statesthattheprinciplesandframework describedinthestandardcanbebeneﬁciallyappliedtoLCCand asset(lifecycle)management(ISO14040,[39]).SakaoandLindahl

[40] took inspiration from LCA for the development of their method for evaluating and improving LCC-based industrial Product-ServiceSystems(PSS).Similarly,[41]combinedLCAand LCC for the development of a PSS for high-energy consuming equipment. Inthis regard,theframeworkandprinciplesofLCA seem tobe at leastpartially compatible withLCC, providing a promisingbasisforresearchonhowtheycanbecombined.

Thisarticle,therefore,aimstoexploretheconceptofcombining theguidingprinciplesofLCAwiththoseofLCC,toformahybrid evaluation methodology that is aimed at providing a multi-dimensional and adaptable perspective on the asset life cycle. ConsideringtherelevanceandwidespreadacceptanceofLCCinthe assessment of asset cost and performance, LCC is used as the conceptualstartingpointforthedevelopmentoftheproposedLife CycleValuation(LCV)methodology.Inaddition,theLCV method-ologyborrowsfromtheguidelinesandframeworkofLCAbutis tailoredtotherequirementsofAMandaimedatassisting decision-makers in evaluating and articulating what makes a complex systemvaluableduringitslifecycle.

LiteratureonLCCandLCA

Existing research on the application of life cycle-oriented assessment methods reveals that despitethe lack of a uniﬁed frameworkforLCC,themethodologyisoftencombinedwithother lifecycle-orientedmethodologiestogainabroaderunderstanding ofthelifecycleimpactbeyondmerecosts.Acommonstrategyto account for the limitations in LCC is combining it with the environmentalperspectiveofLCA.Peçasetal.[42]arguethatLCC andLCAshouldbeappliedinanintegratedmannertoserveascore elementsof LifeCycle Engineering(LCE).Swarretal.[35] have developedacodeofconductthataimstoapplyLCCinparallelwith LCA,byintegratingtheformerintothelatter.Heijungsetal.[43]

proposethatthematrix-basedcomputationalstructureofLCAcan beappliedtoLCCinordertoenablethesimultaneousassessment ofLCCandLCAinasinglestudy.Miahetal.[44]developedanew framework for mergingLCC and LCAbycombining sixexisting frameworks.Atiaetal.[45]proposeaframeworkthatintegrates LCCandLCAbylookingatthesequenceofactivitiesinaparticular

valuechain.Hoogmartensetal.[46]investigatedtheconnections between varioussustainability assessment tools and how they relatetoarrivingatatriplebottomlineLifeCycleSustainability Assessment (LCSA). Neugebauer et al. [47] have developed a macroeconomic impact pathway that combines assessment perspectivesfromLCA,LCC,and Social LCAin ordertosupport anLCSA.Additionally,economicinput-outputmodelsareusedto linkmacroeconomicactivitieswithabroadspectrumof environ-mentalburdens,allowingthetwotobeassessedsimultaneously

[48,49].

Besides the parallel application of LCC and LCA, another research focus can be found in the investigation of the methodological differences and similarities between the two. Norris[50]investigatedthedifferencesbetweenLCAandLCCto betterunderstandhowtheycanbeappliedinparalleltoassistin combined economic- and environmentally-focused decision-makingintheprivatesector.Huppesetal.[38]investigatedthe fundamentaldifferencesbetweenLCA,Cost-BeneﬁtAnalysis(CBA) andBudget-focusedLCCapproachesinordertodevelopa meta-framework.Theycitedimensionsofcostcategories,costbearers, cost models,and cost aggregationmethods as themain differ-entiators between life cycle methodologies. Bierer et al. [51]

investigatedmutualpointsofcontactandmethodological relation-shipsbetweenLCCandLCAwiththeaimofintegratingthetwo methods. Overall, there appears to be a signiﬁcant conceptual overlapbetweentheLCCandLCAmethodologies,withdifferences manifestingintheadoptedevaluationconcepts(seeTable1).

Existing research streams appear to primarily focus on combining LCC and LCA. As such, they retain their respective advantages and disadvantages when combined into a single application. Even though this combined application provides a broadervalueperspectivethanﬁnancialorenvironmentalimpact alone,theoutcomesofsuchassessmentsareinherentlylimitedto thequantitativeaspectsofeconomicandenvironmentalimpacts. Furthermore,the combinedapplication of thesemethodologies remainsprimarilyreductionistandobject-focusedinnatureandis therefore ill-suited todeal with external uncertainties such as long-term systemic changes or continuously shifting organiza-tionalgoals,asdiscussedinSection“Problemidentiﬁcation”.

In the literature onproduction environments, an increasing focus on value creation can be observed as the conventional producer-consumer model has begun to be replaced by the conceptofvaluecreationinsociety,whichcanbeviewed from multipleviewpointsanddisciplines[52].Kumaretal.[53]present value as an ever-changing ﬂow of value creation during manufacturing,value consumption in theusephase, and post-usereclamationofvalueduringrecoveryinordertoestablishthe mostvaluablestrategyatdifferentlifecyclestages.Rossetal.[27]

describehowﬂexibility,adaptability,scalability,modiﬁability,and robustnesscanbeusedasdesignstrategiestocreateandmaintain asystem_’slifecyclevalue,aswellasprovidingperspectivesfrom

Table1

ConceptualoverlapofanddifferencesbetweenLCCandLCA. Conceptualoverlap Conceptualdifference

purpose inventory ﬂows units timetreatment aggregation

LCC Lifecycle-oriented Needforsystem boundaries Needfordeﬁning scenarios

Relianceonforecasting, estimation&assumptions Relianceonsensitivityan improvementanalysis Assessing cost-effectiveness Activity-based Costengineering Annualtimeline Cashﬂows MainlyOPEX& CAPEX

Monetary (s,$,etc.)

Timingiscriticaldueto thetimevalueofmoney

Cumulative NPV Annuity Rate-of-return LCA Assessing environmental performance Process-based, supplychain oriented Adoptionofa functionalunit

Mass,energy,and pollutantﬂows

Primarilymass, energyand volume

Timingofemissionsare irrelevant

Broadtemporalscopes apply

Multipleimpactareas Weightedindication oftheoverallimpact

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which to perceive value. Bosch-Mauchand et al. [54] use a combinedproductlifecyclemanagementandknowledge manage-ment approachtomodelvaluefordifferentstakeholdersinthe value chain. as providing perspectives fromwhich to perceive value.Bosch-Mauchandetal.[54]useacombinedproductlifecycle management and knowledge management approach to model valuefordifferentstakeholdersinthevaluechain.Valueisalso discussed inthecontextofthedevelopmentofProduct Service Systems(PSS).Apotentialexplanationforthistrendcouldbethat thecostsofprovidingaserviceviaPSSareconsideredbymanyto beequivalenttothecostofanin-servicestageofadurableproduct, requiring increased attention to how the outcome of the PSS relatestoitscosts[55].Matschewskyetal.[56]thereforeprovide anapproachtoanalyzeandimprovePSSvaluecaptureoverthe entire lifecycle. In these examples from literature, as well as colloquially,valueisgenerallyunderstoodassomethingdesirable, positive, important, or useful. Renkema and Berghout [57], however,useamultidimensionalviewonpositiveandnegative aspectsoffinancialandnon-financialconsequencestoclarifythe concepts used in the evaluation of IT investment evaluation. Martinsuoetal.[58]alsoframethevalueofinfrastructureprojects asbeingmulti-dimensionalandhavingbothpositiveandnegative dimensions. In LCC, the convention is to quantify costs using positivenumbers,resultingincostsavingshavinganegativecost impact.Likewise,inLCA,environmentalimpactisconventionally quantified using positive numbers (and avoided impacts using negativenumbers).BecausetheLCVmethodologyisintendedto evaluatebothpositiveandnegativevaluesinthelifecycleandis rootedinbothLCCandLCA,itispositionedasamethodologythat is aimedattheassessment of bothpositive andnegativevalue factors. In this research, ‘bad’ factors such as costs and environmental impactsarerepresentedusingpositivenumbers. As such, the LCV methodology is positioned as a valuation approach,aimedatevaluatingandassigningvaluefactorsinthe lifecycleusingmonetaryunits.

Designscienceresearch

The methodology used tostructure the developmentof the proposed LCV methodology is Design Science Research (DSR) which is definedas “anexplicitly organized,rational,andwholly systematic approachtodesign;not justthe utilizationof scientific knowledgeofartefacts,butdesigninsomesenseasascientificactivity itself”[59].DSRisanadvantageousapproachgiventheprofessional engineering settingswhere theaforementionedproblems arise, indicating the need fora new guiding frameworkfor

lifecycle-orientedassessment. Denyeret al. [60] characterize thedesign sciencesparadigmby(1)researchquestionsbeingdrivenbyan interestinfieldproblems,(2)anemphasisontheproductionof prescriptiveknowledge,and(3)ajustificationofresearchproducts largelybasedonpragmaticvalidity.Holmströmetal.[61],indicate that DSR is different from many other applied research areas becauseitaimstobridgepracticewiththeory,ratherthantheory withpractice.DSR, therefore,starts withtheidentification and motivationofarelevantresearchproblem(seeSections“Problem identification”–“Research motivation”), the development of a designthat fulfillscertainobjectives andcriteria,and resultsin theapplicationandevaluationofadesigninareal-worldcontext

[62,63].

ThetypeofDSRappliedinthisarticleiscalled‘exaptation’,a processbywhichfeaturesacquirefunctionsforwhichtheywere notoriginallyadaptedorselected,extendingexistingsolutionsto newproblems[64,65].Anexampleoftechnologicalexaptationcan befoundin the re-adherable stripthat is used insticky notes, whichwasdiscoveredinanexperimentthatwasoriginallyaimed at ﬁnding a more permanent adhesive. In this research, the proposed solution is established by adapting the guiding framework and principles of LCA to the application of LCC, creatinganew,hybridmethodology.Thisnewmethodologyisthen appliedtothenewproblemofassessing thelifecyclevalueof physicalassetsinAssetManagement.

Testingtheapplicationofdesignedartefactsintherealworld comprisesanessentialstepinDSR[63].TheapplicationoftheLife Cycle Valuation methodology is demonstrated, tested, and evaluated in multiple decision-making instances at the Asset ManagementdepartmentofDistributionSystemOperator(DSO) Liander,whichoperatesintheNetherlands.AsthelargestDSOin thecountry,Lianderisresponsiblefordistributingnaturalgasand electricity to homes, businesses, and industrial customers. Liander’s 3.1 million electrical grid customers are supplied by complex distribution grids consisting of physical systems with longlifespanssuchas transformers,overheadandunderground cables, switchgear, constructions that house installations, and othercapitalgoods.Animportantchallengeinthemanagementof thesephysicalsystemsis that whilesomesystemshave along lifespan(e.g.transformers)andothershaveashortlifespan(e.g. digitization components), they often need to be considered simultaneouslyaspartofalargersystem orassetportfolio.The LCVmethodologywasusedinthesetypesofdecisioncontextsthat previouslyreliedonLCCasthemainassessmentinstrument.Ithas beenusedtoguideandsupporttheassessmentofmultipleasset life cycle-relateddecisions withintheelectrical side ofthe AM

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organizationofLiander(excludingthedistributionofnaturalgas). Giventhevariancesinlifespan andassetobjects(i.e.individual assets, asset portfolios, and complex systems) this set of application contexts was selected tomirror thebroad range of AMdecision-makingcontexts,asdiscussedintheintroduction.

Hevner[66]indicatesthatinDSRtheartefactnotonlyneedsto provide utility in practice (relevance) but that it must also contribute tothe knowledge base(rigor). The outcome of DSR thereforenotonlyleadstopragmaticdesigns(oftenreferredtoas artefacts)butalsoresultsinabetterunderstandingoftheproblem and thesolution,thus providingtheoreticalknowledgeas well. Sein etal. [67]stresstheneedfor reconceptualizingthehighly organization-specificsolutions intogeneralizable design princi-ples for classes of problems, capturing the knowledge gained throughoutthedesignprocess.Assuch,theefficacyofthedesignis notjustevaluatedaccordingtoitsdesignobjectivesandcriteria, but also includes a reflection on the most important design principlesthat formthecoreof thedesignof theLCVmethod. Lastly, unstructured interviews with the AM staff that were involvedinthepracticalapplicationoftheLCVmethodologywere used to evaluate whether the methodology is practicable. The overallstructureoftheusedDSRmethodologyissummarizedin

Fig.1,basedontheoutlineprovidedbyPeffersetal.[62]. Designobjectivesandcriteria

Asdiscussedintheintroduction,thepracticeofapplyingLCC and LCAdoesnotnecessarily providea completepictureofthe valuegeneratedintheassetlifecyclewhenregardedfromanAM perspective. Inorder forthedesign of theLCVmethodologyto sufﬁcientlysupportAMdecision-making, severaldesign criteria are used that are tailored to the speciﬁc characteristics and requirementsofAMdecision-making(seeTable2).

Thefirstcriteriumisthatasuccessfuldesignshouldbeableto consider theentirelifecycleofanassetandshouldapplytoall stageswithinanassetlifecycle[11,68,69].Thesecondcriteriumis thatthedesignshouldbeabletoconsolidateinformation,data, and expertise from multiple disciplines and management perspectives [3]. Furthermore, the design should be able to account for and differentiate between, multiple financial and non-financial value factors such as economic, environmental, social, and technical impactsas well as the needs of relevant stakeholders [25,70].It also mustbe abletoapply todifferent system definitions, such as at the level of individual assets, portfoliosofsimilarassets,or(complex)systemsofassets[11,18]. And lastly, the designed methodology should be able to link decisions atthelevel of theasset life cycletothelevel of the organizationalstrategy[71,72].

Designprinciples

The design of the LCV methodology borrows from various designprinciplesfromdifferentmethodologies.Toclarifytherole of theseprinciplesinthedesign of theLCVmethodology,their originsandimplementationsarebrieﬂydiscussed.

LifeCycleCostingandthetimevalueofmoney

AMisconcernedwithcontinuousimprovementandalignment of ﬁnancial and non-ﬁnancial functions (ISO 55010, [70]), therefore, life cycle cost control forms an important activity

[71].Assuch,theconceptualstartingpointforthedesignofthe LCVmethodologyisrootedinLifeCycleCosting.Forthepurposes ofthis article,LCCcanbeunderstoodas: “Ananalysistechnique whichencompassesallcostsassociatedwithaproduct”[73],“fromits conceptionandfabrication through itsoperationto the endof its usefullife”[19],“withthegoalofestimatingthecostsassociatedwith theexistenceofaproduct_”[34].

UnlikeinthecaseofLCA,wherenoexplicitdifferentiationis madebetweenemissionsaswellasimpactsatdifferentmoments intime,thefinancialperspectivedoeshaveatimepreferencedue to (1) changes in price levels, (2) pure time preference, (3) productivity of capital and diminishing marginal utility of consumptionand(4)uncertainties[74].Animportant character-isticofLCCisthatitaccountsforthe‘timevalueofmoney’.InLCC, cashflowsthatoccuratdifferentmomentsintimearediscounted back to a base period by using the Net Present Value (NPV) technique[17].The‘timevalueofmoney’conceptisusedinthe designoftheLCVframeworkintwoways:thefirstistheuseof discountingusingtheNPVtechnique(seeEq.1),thesecondisthe applicationofEquivalent AnnualAnnuity(EAA)(see Eq.2).The latterallowsforacomparisonbasedonadiscountedyearlyaverage

[75],enablingafaircomparisonofmutuallyexclusiveoptionswith unequallifespans.AcommonpracticeforAMorganizationsisto basethe discount rate on theﬁrm’s WeightedAverage Costof Capital(WACC),aswasthecaseatcasecompanyLiander NPV¼ Rt

1_þi

ð Þt ð1Þ

NPV=Net Present Value; Rt=net cash ﬂow; i=discount rate;

t=yearoftheimpact. EAA¼ iðNPVÞ

1ð1þiÞn ð2Þ

EEA=Equivalent Annual Annuity; i=discount rate; n=elapsed numberofyears.

FourstageLifeCycleAssessmentframework

EventhoughLCCistheconceptualstartingpointforthedesignof theLCVmethodology,another prominentdesignprincipleisthe adoptionofthefourstagesofLCA(seeFig.2).Thebasicoutlineofthe fouriterativestepsofdeﬁningthegoalandscope,performingan inventoryanalysis,assessingtheresultingimpact,andinterpreting thewholecanbeadaptedtoprovidegeneralguidanceandstructure othertypesoflifecycleassessmentsthanjustLCA[39,76]. Deﬁningthesystemofinterest

Complexsystemenvironmentsarecharacterizedbyill-de_ﬁned andpotentiallytacit,divergent,orpluralisticgoalsthatare value-Table2

SummaryoftheAM-baseddesigncriteriafortheLCVmethodology. Criterion

1 Abilitytoconsidertheentirelifecycleofanassetandapplytoallstageswithinanassetlifecycle

2 Abilitytoconsolidateinformation,data,andexpertisefrommultipledisciplinesandmanagementperspectives

3 Abilitytoaccountfor,anddifferentiatebetween,multipleﬁnancialandnon-ﬁnancialvaluefactorssuchaseconomic,environmental,social,and technicalimpactsaswellastheneedsofrelevantstakeholders

4 Abilitytoapplytodifferentsystemdeﬁnitions,suchasatthelevelofindividualassets,portfoliosofsimilarassets,or(complex)systemsofassets. 5 Abilitytolinkdecisionsattheleveloftheassetlifecycletotheleveloftheorganizationalstrategy

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laden, shifting, and challenging to make entirely explicit [77]. Therefore, another LCA-inspired design principle consists of deﬁningthe‘systemofinterest’,whichissimilartotheconcept of thesystemboundaryinLCA.Thiscanbeusedtodistinguish between what is exogenous and endogenous tothe system, it clariﬁesthelevelofgranularityinexaminingwhathappenswithin the system’s boundaries, which can be viewed as the actions performedonoroutcomesrelatedtothesystemofinterest[31].

Combinedbreakdownstructures

Another design principle that has been applied to the LCV frameworkistheapplicationofabreakdownofindividuallifecycle elements, a conceptthat is similar tothebreakdowninto cost elementsinLCC[78].ThisconceptborrowsfromCostBreakdown Structures (CBS) but allows for the breaking down into more aspects of value creation than just costs. These breakdown structuresconstitutealogical subdivisionbyfunctionalactivity, area,amajorelementofasystem,and/ormorediscreteclassesof commonitemsthatcanbeusedtolinkobjectivestoactivitiesand availableresources[79].AcommonCBSisthatofActivity-Based

Costing(ABC),whichlinkslifecyclecoststoactivitiesthatoccur throughoutthelifecycle[80,81].Thisallowsresourceconsumption tobetracedtodistinctactivities.Thebreakdownstructureapplied intheLCVmethodologyfunctionssimilarlybutadoptsa three-dimensional breakdown structure, similar to the structures of KawauchiandRausand[78]andGötzeetal.[82].Thebreakdown structurethatweproposeisbrieﬂyexplainedbelowandillustrated inFig.3.

InthebreakdownstructureofLCV,allactivitiesinthelifespan ofanassetaremadeupofindividual‘lifecycleelements’.Multiple lifecycleelementscanbeplacedonatimelinethatrepresentsthe (remaining useful) lifespan of the asset, creating an Activity BreakdownStructure (ABS).Each lifecycleelementcanhave an impactthatcanaffectoneormoretypesofvalue,asstructuredby theValue BreakdownStructure(VBS).Combinations ofmultiple lifecycle elements are then used to build a modular, three-dimensionalrepresentationofthelifecyclewhichallowsforeither a value-basedperspective (usingaggregatedactivities fromthe ABS) or an activity-based perspective(using aggregated values fromtheVBS)ofvaluecreationovertimeduringtheassetlifespan insegmentsofindividualyears.

Monetaryvaluation

ConventionalLCCdoesnotrequireanimpactassessmentphase, becauseall inventory data comprises a single unit of measure, namelycurrency[35].Asindicatedindesigncriterion3,theLCV framework needstosimultaneouslyconsider multiplefinancial and non-financialvalue factors,which theaforementionedVBS required.Variousvalue-relatedimpactsarethereforeaggregated andexpressedinfinancialterms.

Monetaryvaluationisthepracticeofconvertingmeasuresof socialandbiophysicalimpactsintomonetaryunitsandisusedto determinetheeconomicvalueofnon-marketgoods,i.e.goodsfor whichnomarketexists[83].InAM,monetaryvaluationistypically already implicitly applied as part of risk management, where resourcesare allocated tomitigate differentkinds of risk. Risk matrices are commonly used toidentify, analyze,and evaluate risks,basedonlikelihood,consequence,andrisktolerancecriteria

[84].Assuch,therealizationofvaluethroughmanagingriskand opportunity already depend on balancing of cost, risk, and performances(ISO55000,[11]).Theperformance indicatorsfor Fig.2.FourstagesofLifeCycleAssessment(ISO14040,[76]).

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checkingthedesiredobjectivesortargetsduringtheoperationand maintenance phaseofa productorsystem canbearrivedatby takingreliability,availability,maintainability,andsafety(RAMS) intoconsideration[85].Riskscanbemodeledasasinglelifecycle elementbymultiplyingtheexpectedlikelihoodandconsequence foreachrisk[84].Whileriskandopportunityareusuallymanaged fromaninternalcompanyperspective,takingtheconsequencesfor other stakeholders into account is also increasingly expected. Simpliﬁedindicatorsofenvironmental andsocialimpactcanbe translatedintoexternalsocialandenvironmentalcosts,allowing the integration withconventional cost assessment suchas LCC

[86]. These _‘shadow costs_’ are expressions of environmental impactinmonetaryterms,usingﬁnancialunits(e.g.sor$)andare usuallybasedonabatementordamagecosts.

Designanddemonstrationofthelifecyclevaluation(LCV) methodology

The LifeCycle Valuation (LCV) methodology consistsof two main elements: (1) a four-phased framework (see Fig. 4) that guides theprocessof performinganLCV assessment,and (2) a combination of calculations and the aforementioned modeling principles that have beenprogrammed into an LCV tool using commonlyavailablespreadsheetsoftware.

Step1:formulationofthegoalandscope Determiningthegoal

TheﬁrststepinperforminganLCVassessmentistodetermine the goal. This makes it explicit what the main reason for performing the assessment is and what therequirements of a successful assessmentare.For example,inAM,thegoalcanbe operational (such as optimization as a part of a continuous improvementcycle) orstrategicinnature(suchas:linkingtoa speciﬁcorganizationallong-termgoal).

It alsoprovidestheopportunitytostatewhetherthe assess-mentisofanattributionaloraconsequentialtype.Anattributional assessmentisaimedatidentifyingwhichvalueiscreatedoverthe lifecycleoftheasset,thusrequiringtheLCItoincludeallrelevant impactsassociatedwiththelifecycle.Aconsequentialassessment may leave out certain elements that are the same for all alternativeswithinthescope,forexampleincomparativestudies. Deﬁningthesystemofinterest

Thesystemofinterestisusedtodeterminewhichsystemor systemsisorareconsideredtobethemainsubjectofstudyand

providesorprovidetheopportunitytoclarifywhichpartsofthe systemorsystemsisorareincludedintheassessmentandwhich partsareconsideredout-of-scope.The systemdeﬁnitionis also usedtoindicatewhetherthesystemofinterestconsistsofasingle asset,aportfolioofsimilarassets,oracomplexsystemofmultiple interdependent assets. If necessary, allocation and attribution procedurescanbeexplainedinthisstepaswell.

Determiningthetemporalscope

The time frame is used to specify the scope of the LCV assessment concerning its temporal dimension. It is used to determinethesectionoftimethattheLCVassessmentcovers,by indicatingthestartingyearoftheassessmentandthedurationup toandincludingthelastyear.ForAM,thelifespanorremaining usefullifeoftheassetcanbeusedtoguidethedeterminationofthe timeframe.

Anotheraspectofthetemporalscopeisthediscountratethatis used to calculate the NPV of impacts that occur at different momentsintime.

Determiningthevaluebreakdownstructure(VBS)

TheValueBreakdownStructure(VBS)isusedtoindicatewhich valuefactorsare includedinthe assessment andhow they are quantiﬁed. These value factors can depend on the goal of the assessment,orbecoordinatedwithinanAMorganization.Thisis similarto,forexample,acomponentofriskmanagement,inthatit allowsfordifferentiationbetweenmultiplevaluefactorssuchas: Financial impacts such as capital expenses (CAPEX) and

operationalexpenses(OPEX)

Technicalimpactssuchasreliability&availabilityofthesystem (e.g.failurerate)

Externalitiessuchasenvironmentalimpacts(e.g.CO2emissions)

orsafety(accidentrate) Otherrelevantvaluefactors

In orderto allowfor calculation,these‘impacts’ need tobe expressedinunits(e.g.s,kg,m3,min)andhaveavalueequivalent per unit of impact (e.g. s/kg, s/m3 s/min.). By differentiating betweendifferentimpactsintheVBS,theirrelativecontributions canlaterbetracedbacktotheaggregatedimpactresults.Table3

showsaselectionofthemostfrequentlyusedimpactsintheVBS whichwereusedduringtheapplicationoftheLCVmethodologyat theAMorganizationofDSO Liander.Thevalueequivalences (s/ unit) for Liander are considered sensitive information and are thereforenot shown. Note that impacts in theVBS canhave a

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ﬁnancialimpactfortheAMorganization,anon-ﬁnancialand/or non-organizationalimpact,oracombinationofboth.

Step2:lifecycleinventory

The Life Cycle Inventory (LCI) is constructed using discrete ‘lifecycle elements’ that can have one or multiple impacts associated withthem. For example, a lifecycle element of one dayofoperationcanresultinthecumulativeimpactof_s100of OPEX and the emission of 24kg of CO2-equivalents (see the

exampleinTable4).Theseelementscanbeconstructedusingdata, expertiseand,ifnecessary,assumptions.

Multiple lifecycle elements can be placed on a timeline to construct a complete LCI of all relevant aspects and activities withinthelifecycleoftheasset,forminganActivityBreakdown Structure(seeexampleinFig.5).Multipleunitscanbeenteredfor eachlifecycleelementonthetimeline.TheABSenablestheuserto trace theoverall LCVimpact resultingfrom individuallifecycle elementsandthatoccuratspeciﬁcmomentsintime.

Thecreationofthelifecycleelementsandthetimelineislikely to require the integration of multiple disciplines, as it should describe all relevant activities in the asset lifecycle. Lifecycle elementscanbeupdatedindividually,withthechanges propagat-ingintoanoverallimpactscore.

Step3:impactassessment

After modeling and placing each lifecycle element on the timeline,thetotalimpactcanbecalculated.For example,ifthe user enters‘2 daysof Operation’ onthetimeline asinput in a speciﬁcyear,thiswouldresultinatotalLCVimpactofs24,320(2x s1001sOPEX+224s090CO2equivalents),asindicatedin

Table5.NotethattheLCVimpactisexpressedinEUR(s),butthat thisdoesnotnecessarilyrepresentﬁnancialvaluealone,asitmay alsoincludenon-ﬁnancialimpacts.

AsLCVdealswithdifferentimpacts atdifferentmoments in time,adiscountrateshouldbeprovidedtosupportthecalculation oftheNetPresentValueofallimpactsthroughoutthelifecycle. When dealing with comparative assessments with different timeframes, theEquivalent Annual Costtechnique can beused tocompareimpactsbasedonyearlyaverages.

The combined implementation of the Activity Breakdown Structure and the Value Breakdown Structure, using discrete lifecycleelements,allowsforamulti-perspectiveinsightintothe resultsoftheassessment.Inordertosupportinterpretation,the

dashboard of the LCV tool offers multiple options and cross-sections(alsoreferredtoasimpactproﬁles),suchas:

Adjustment of parameters (e.g. discount factors) and related assessmentperspectives(seeFig.6)

Overviewofimpactovertime(seeFigs.7–9)

Activity-basedbreakdownsoftheLCVimpact(seeFig.8) Value-basedbreakdownofthetotalLCVimpact(seeFig.9) Step4:interpretation

Theprofilesinthedashboardsupporttheinterpretationofthe resultsinseveralways.Itallowsforaquantitativeoverviewofthe financial and non-financial value of everything within the assessment scope. It can be used to trace the origin of these impactsbacktoindividuallifecycleelements.Thiscanbeusedto supportadditionalinvestigationanddevelopmentofthe assess-mentoutcomebymeansof sensitivityanalysis, completeness& consistencychecks,andimprovementanalysis.

ThetotalLCVimpact(expressedinmonetaryunitssuchass) canbeusedtoindicatethelifecycleoptionthathasthebestoverall impactscore.Instraightforwardsituations,itmaybepossibleto shortenthesensemakingprocesstoasimple‘information’phase, butincomplex,ambiguous,multi-levelsituationsitisnecessaryto allowfor,andfoster,sensemakinginteractions[87].Forexample, elementsforwhichquantificationisnot(yet)possibleshouldnot beneglected[36]andconsideredinthedecisionofwhichlifecycle option ispreferred.Furthermore,due tothestrategicnatureof many AM goals, the option with the best LCV impact is not necessarilythemostvaluableone.MorethaninLCCandsimilarto LCA, the interpretation phase of LCV and its reflection on the limitationsinthegoalandscopeoftheassessmentisacriticalfinal stepinmakingsenseoftheassessmentoutcome.

EvaluationoftheLCVmethodology

TheapplicationoftheLCVmethodologyattheAMorganization ofLianderrevealedbothanticipatedandunanticipatedoutcomes. Usingobservation,unstructuredinterviewsduringtheapplication oftheLCVmethod,andevaluationsessionsaftereachapplication, theseoutcomeswerelinkedtothedesignprinciples,summarized in Table 6, providing a condensed overview of how the LCV functionsinpractice.

Overall, the general outline of the four stages of the LCA framework(asillustratedinFig.2)seemedtobewellsuitedfor structuringLCVassessmentsofdifferenttypesofassetsindifferent lifecyclestages.ThefouriterativephaseswereseenbyLiander’s AMstaffasbothrationaland reasonable,butalsoassomething clearlydifferentfromthewayLCChasbeenassessedwithinthe organizationinthepast.Theexplicitdiscussionofthegoal,scope, and system of interest stimulated a long-term and lifecycle-orientedperspectivethat isbroaderinscopethanconventional Table3

ExamplesillustratingaselectionofcommonlyusedimpactsintheVBSatLiander.

Impact Unit FinancialimpactfortheAM

organization(s)

Non-organizationaland/ornon-ﬁnancial impact(seq.)

CapitalExpenses(CAPEX) sOPEX 1s

OperationalExpenses(OPEX) sCAPEX 1s

SystemAverageInterruption DurationIndex(SAIDI)

minutes ... s/min

(actualcoststore-establish powerdistribution)

... s/min

(inconvenienceofoutageforcustomers)

GlobalWarmingPotential(GWP) kgCO2-equivalent ... s/kgCO2-equivalent

(environmentaldamages)

Table4

Examplesillustratingtwolifecycleelementsandtheirassociatedimpacts.

Lifecycleelement Unit Amount Unit

Acquisition apiece 10.000 sCAPEX

Operation day(s) 100 sOPEX

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LCCapplications.Assuch,theLCVmethodologywaseffectivein stimulatingtheconsiderationoftheentirelifecycleandprovedto apply to multiple lifecycle stages (design criterion 1). A grid architectreflectedonthisnewwayofsupportingdecisions:“the decisionsofagridarchitectusedtobefocusedonshort-termfinancial impactinsteadoflong-termvalue”.Thegoalandscopedefinition alsoinitiateddiscussionsaboutwhattoincludeintheassessment, howtoincludeit,andhowtoensureafairassessment.Despitethe benefitsofdiscussingthegoalandscope,however,thisactivitydid notcome‘naturally’totheAMstaff,whotendedtoskipthisstep and start the assessment with data collection. Early design iterations,therefore,includedtheintroductionofabriefkick-off session where the goal, scope, and system of interest are specificallydiscussedanddefined.

The application of the LCV methodology proved to be appropriate fordifferenttypes ofobjectsthat wereincludedin thedecision-makingcontextsdescribedinTable7.Thisevaluation included individual assets, portfolios of assets, and (complex) systemsofassets(designcriterion4)andallowedforinvestigating multiplevalueperspectivesforeachcase.Forexample,theEnergy Flexibilitycasestudiesincludednotonlytheﬁnancialimpactfor

Liander but also accounted for thecosts incurred by Liander's customers,aswellastheenvironmentalimpactassociatedwith potentiallyhavingtorestricttheproductionofrenewableenergy.A juniorgridarchitectreﬂectedthatwithouttheseconsiderations, “thegrid architects would likely make adecision based solely on [Liander’s] immediate costs and not consider a broader value perspectiveatall“.

Inmanycases,thedata,information,and resultsofprevious LCV assessments could be re-used in other assessments. The informationrequiredintheLCIphaserarelycamefromasingle source but tended to be spread throughout the organization, correspondingwiththedifferentdisciplinesthatarerequiredin differentlife cycle stages. In creating the LCIand the ABS, the decision-makersnotonlygathereddataexpertiseandinformation, buttheyalsoneededtodevelopaplanforthe(remaining)lifecycle of the asset, usually consisting of competing alternatives or divergentfuturescenarios.WithinanLCVassessment,theactivity ofLifeCyclePlanning(LCP)andtheinformationfoundinexisting life cycle plans therefore played key roles. Integrating these multidisciplinary perspectives required an iterative process of modelingandveriﬁcation,whichincreasesthetimerequiredfor Fig.5. Activitybreakdownshowingdiscretelifecycleelementsplacedonatimeline.

Table5

BreakdownofthetotalLCVfor2daysofthelifecycleelement‘Operation’.

Lifecycleelement ValueBreakdown LCVimpact

Name Amount Unit Amount Unit Valueeq. Valueeq. Sum

Operation 2 day(s) 100 sOPEX s1 s200 s24,320

24 kgCO2equivalent s090 s4320

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performingLCIand canbeconsideredadisadvantage.However, themainadvantageofthisapproachliesinthefactthatinvolving multiple disciplinesreducesthe potential for omittingrelevant factors,whichbuildssupportfor,andtrustin,theoutcomeofthe assessment. Asenior AMpolicyadvisorreﬂected: “TheLCIisall aboutcollectingperspectiveswhichareformedbydifferent‘realities’ that emergefrom divergentunderstandings andneeds. It is these perspectivesthatyoutrytocaptureinthemodel,insuchawaythatit isrecognizableforeveryoneinvolved”.Assuch,thedesignoftheLCV fulﬁllsdesigncriterion2byconsolidatinginformation,data,and expertisefrommultipledisciplinesandmanagementperspectives.

Thethree-dimensionalbreakdownstructureofanLCVmodel allowsforanassessmentofthreecomplementaryperspectivesof theimpact.Onebreakdownoftheimpactispossibleinthetime dimension,whichisanecessityinLCCbuttypicallyignoredinLCA. ThetimedimensionisnecessaryforLCVbecauseofthetimevalue ofmoneyinvolvedinassetinvestmentsaswellastheroleoftiming inLCP.Anotherbreakdownoftheimpactcanbemadeusingthe VBS, enabling the assessment of multiple financial and non-financialvalue factorssuchas economic,environmental, social, andtechnicalimpactsaswellasthecostsandbenefitsofrelevant stakeholders,fulfillingdesigncriterion3.Thelastbreakdownof theimpactcanbemadeusingtheABS,makingitpossibletoassess impactsatthelevelofactivitiesintheassetlifecycle.Thisallows theseactivitiestobelinkedtoeitheroperationalperformanceor organizationalstrategy,dependingonthegoalandscopeofthe assessment (design criterion 5). In this regard, the impact assessment phase of the LCV methodology resembles that of LCA,asmultipleimpactcategoriescanbeassessedsimultaneously or individually.Thisprofilingstep differsfromLCC, whereit is commonplacetoaggregateallcostsintoasingleLCCfigureoran aggregatedsumoftheTotalCostofOwnership(TCO).Eventhough itwastechnicallypossibletoperformafinanciallyfocused(LCC style)assessmentbyincludingonlyfinancialimpacts,everyLCV assessmentatLianderincludedrelevantquantitativevaluefactors thatwereeitheranon-financialimpactoraffectedthefinancesof otherstakeholders,suchasthoseofthecustomerswhorelyonthe energygridinordertogeneratetheirrevenues.Toconceptually distinguishthefinancial perspectivefromthenon-financialone during theimpactassessment stage, differentterminology was used by various decision-makers (see Table 8). This not only indicatesthedesiretobeabletoconceptuallyseparatethetwobut alsoaneedtocombinebothperspectivesduringdecision-making. Adecision-makerresponsibleforfuture-proofgriddesignphrased thisasfollows:“Youshouldn’tblindlyaggregateallcostsandbenefits Fig.7. AnexampleoftotalLCVovertime(annualandcumulativeviewscombined).

Fig.8.Exampleofactivity-basedbreakdownovertime(left)andoverallimpactcontribution(right).

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Table6

DesignprinciplesoftheLCVmethodologyandtheirconsequences.

Designprinciples Outcomes

Formulationofthegoal&scope,andthe deﬁnitionofthesystemofinterest

FocusedtheattentionoftheAMstafftotheentireassetlifecycle(insteadofonlytheinitialphases)andstimulateda long-termtimeframeandfuture-orientedmindset.

Initiateddiscussionsabouttheconsequencesofassetlifecycledecisionsatthesystems(energygrid)and/orasset portfoliolevels(andhowtheseeffectsshouldbeincludedintheassessment).

Thegoal,scope,andsystemofinterestwereofteninitiallyperceivedbytheAMstaffasself-evident(thussometimes evenskippedentirely),butregularlyneededfurtherinvestigation,adjustment,andexplanationinthelaterstagesofthe assessment.

ValueBreakdownStructure(VBS)& MonetaryValuation

EnablingtheassessmentofquantitativefactorswithabroadvaluescopebeyondonlyLCC(e.g.includingfactorssuchas environmentalimpactorstakeholdervalue)

Clariﬁedwhichquantitativeelementsareincludedintheassessment,howtheyarequantiﬁedandwhat(monetary equivalent)valuetheyaregiven.

RequiredthecoordinationofthequantiﬁcationproceduresandmonetaryvaluationfactorswithintheAMorganization (e.g.howtomeasureandvalueCO2emissions).

LifeCycleInventory(LCI)andActivity BreakdownStructure(ABS)

Initiatedtheformulationofalifecycleplanfortheactivitiesandconsequencesintheremainingusefullifeoftheasset. RequiredthecreationofLCI’sformultiplealternativesolutionsand/orfuturescenarios.

Requiredthecollectionofexpertise,data,andassumptionsfrommultipledisciplines(relatedtoallrelevantelements intheassetlifecycle).

Tendedmainlytoincludedominantcost&valuedrivers(thuscutting-offlesssigniﬁcantimpacts)tospeedupand simplifyassessment.

ImpactAssessment Allowedforasimultaneousquantitativeassessmentofﬁnancialandnon-ﬁnancialimpacts(asdeterminedintheVBS). EnablesthecomparisonbetweenaconventionalLCCimpact(sumofallOPEXandCAPEX)and‘LCVimpact’(LCC+other quantitativevaluefactors).

Allowsthetrackingofspeciﬁcimpactsthatresultfromindividuallifecycleelementsfacilitatingsensitivityand improvementanalyses.

Interpretationphase Providestheopportunitytoacknowledgeanddiscussrelevantdecision-relatedfactorsthatarenot(easily)quantiﬁed. Providestheopportunitytoacknowledgeanddiscussthesensitivityoftheassessmenttolong-termchanges.

Table7

Decision-makingcasesthatwereusedtotestanddemonstratetheLCVmethodologyandtheirkeyvalueperspectives.

Decisioncontext Description Assetobjects Lifespan Keyvaluefactors

1 FaultDetection Findingoptimalplacementoffault detection&localizationcomponentsin electricalgrids

Localenergygrids (complexsystem)

15years LifeCycleCosts Outagerisk

Alternativeconﬁgurations 2 AgeingTransformers Consideringrevisionorreplacement

optionsforagingtransformersina substation

Individualasset(s) 40years LifeCycleCosts Outagerisk Climatechange Replacementmoment 3 Substation Solvingacapacityissueforasubstation

anditscomponentsbymeansof replacementorrevision

Individualasset(s) 60years LifeCycleCosts Alternativeconﬁgurations Energylosses

Climatechange 4 GridArchitecture Studyingsigniﬁcantrevisionofthe

networkarchitectureofthegridina denseurbanarea

Majorenergygrid (complexsystem)

Continuous LifeCycleCosts Networkarchitecture Availabilityoflabor Timingandplanningconcerns 5 DemandFlexibility Usingdemandﬂexibilityasaviable

optionforsolving(temporary) congestionissues

Localenergygrids (complexsystem)

35years LifeCycleCosts(DSO) Customercosts

Climatechange(whendealingwith congestionofrenewableenergysources) 6 SwitchgearProcurement Performingapilotstudyonthe

inclusionofastreamlinedformofLCA intheprocurementofMediumvoltage switchgear

Portfolioofassets 40years Costs

Technicalperformance PhotochemicalOzone Formation

ClimateChange FossilDepletion

FineParticulateMatterformation

Table8

Terminologyusedbydecision-makerstodifferentiatebetweenﬁnancialandnon-ﬁnancialimpacts.

Terminologyusedtodescribefinancialimpactfortheorganization Terminologytodescribenon-financialornon-organizationalimpact Hardvalue,cash-out,cashflow,financialimpact,costs,expenses,

costoptimization(andreduction)

Softvalue,socialimpact,societalmoney,environmentalimpact/costs, externalities,multiplebeneﬁts

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inasingleﬁgure.Wewantdistinctinsightsintoalldirect,indirectand societalimpactsbeforemakingadecision”.

ConventionalLCCdoesnotrequireanimpactassessmentphase, because allinventory datacomprises a singleunit of measure, namelycurrency[35].LCVhowever,isdesignedtoassessmultiple value factors simultaneously and takes into account that a reductionist perspective ona singleasset lifecycle may betoo limitedforAMpurposes.TheLCVsupporteddecisionsatLiander were usually sensitive to only a limited number of lifecycle elementsorimpactcategories.Thismeantthatforsome assess-ments at Liander, the results were not sensitive to rough assumptionsandlimiteddataqualitywhentheyappliedto non-dominantimpacts,greatlyreducingthetimerequiredtoarriveat aninformedLCV-supporteddecision.Theinterpretationphaseis alsousefulinconsideringqualitativefactorsforwhichquanti ﬁca-tionisnot(yet)possible.Suchfactorsareoftenneglectedinboth LCCaswellassocialassessments[36].Theinterpretationphase providestheopportunityforthedecision-makertojudgethemost importantquantitative,qualitative,andnormativefactorsrelated tothedecision.SeniorAMpolicyadvisor2commentedontherole ofstructuringtheLCVassessmentinthisway:“LCVisnotaboutthe actofcalculation,butabouttheprocessofarrivingatanappropriate calculation”.LCVinterpretationisthereforenotaimedatarrivingat adeﬁnitiveanswertohowvaluablealifecycleoptionis,butrather, itinvitesthedecision-makertoviewtheassessment(whichhasan inherentlylimited)scope,fromamuchbroaderandholistic(AM) perspective.

Discussionandconclusion

LCVisdesignedbasedonthepremisethatthedecisionsofAM organizationsneedtoconsiderchangingenvironments,shiftsin organizationalgoals,andcontinuouslychangingnotionsofwhat makes anassetvaluablebeyond itscosts.WhileLCC canbean extremelyusefulinstrument fororganizationsthatmanage and investincapitalgoods,itisalsoinherentlylimitedinassessingto whatextenttheseassetscreateandmaintainvalueoverthecourse oftheirentirelifespan.Firstly,LCCisprimarilyfocusedoncosts, whereasAMisfundamentallyvalue-focusedandaimstobalance andalignvariousfinancialandnon-financialvaluefactors,suchas asset performance, risk, environmental and social impacts, and stakeholderneeds,alongsidelifecyclecostsandprofits.Secondly, LCC is traditionally a reductionist and single object-focused approach,makingitlesssuitableforassessingcomplexsystems, assetswithinterconnectedorinteractingobjects,orportfoliosof multiplesimilartypesofassets.Lastly,theunguidedapplicationof LCCtakeslong-termchangesanduncertaintybeyondthetechnical scopeoftheassetlifecycleitselfintoaccountinadequately.This leavesconventionalLCCessentially‘blind’tolong-term organiza-tionalgoals,technologicaldevelopments,(geo)politicalshifts,and societal changes that may render an asset obsolete before its technical end-of-life.LCAontheotherhandalready provides a mature systems-oriented framework for the comprehensive assessmentofvarioustypesofnon-_financialimpactsandexplicit guidance on how to manage the goal and scopes of such assessments.LCA,however,isusuallyfocusedonenvironmental, andtoalesserextent,socialimpacts,formingaperspectivethat maybevaluableandrichininformationbutfailstofullyalignwith theobjectivesofAM,whichalsorequirestheconsiderationofthe aforementionedfactorssuchastechnicalperformance,cost,and risk.

Given these limitations of LCC and LCAwithrespect toAM decision-making,acombinedapplicationofLCCandLCAwouldbe insufﬁcientasitwouldinheritthedownsidesofboth methodolo-gies. Instead, a hybrid approach is proposed that selectively combinesthemosteffectivedesignprinciplesfromLCCandLCA,

and aimstoavoid theirrespectivelimitations for AM decision-making.The resultingLifeCycleValuation methodologycan be considered a novel hybrid approach that is methodologically distinctfromapplicationsthatmerelycombineapplicationsofLCC and LCA. The LCV methodology combines five main design principlesthatare borrowedfrombothLCC andLCA, including (1)usingthefour-stageframeworkforLCA,(2)definingthesystem of interest, (3) accounting for the time value of money, (4) combiningactivity-basedandvalue-basedbreakdownstructures, and(5)usingmonetaryvaluationasameanstoaggregatefinancial withnon-financialresults.

LCVmodels make it possibletoquickly andeasily viewthe value created over the lifecycle from multiple, complementary perspectives. LCV goes beyond simply adding non-financial impactstoLCC,asitallowsforviewingthesamelifecyclemodel from different perspectives, including a financial one. These perspectivescanbetailoredtothespecificgoalsandpreferences of theorganizationoreven otherstakeholdersand caninclude value factors alongside costs, such as environmental impact, technical performance, risk, or any other relevant metric. By viewingtheassessment outcome fromthese different perspec-tives,itispossibletogainabetterunderstandingofhowdifferent costsandbenefitsinthelifecyclecontributetovaluecreation(or destruction)andwhichparametersandlifecycleactivitiespresent themselvesasbeingthemostcriticalorimportantconcerningthe decision context. Because of the existence of multiple value perspectives and the subjective nature of valuation, the LCV methodologydoesnotnecessarilyaimtoseekthemostoptimal allocation of resources, as what is considered optimal by one stakeholder,maybesub-optimaltoanother.Instead,LCVutilizes the4phaseframeworkofLCAtofocusonmakingtheassessment and valuation process itself as transparent and objective as possible, thereby helping professionals better understand and articulatewhat makes a complex system valuablein a specific decisioncontext.TheLCVmethodology,therefore,consistsnotjust ofaflexibleandadaptablecalculationmethodforvaluethatcanbe tailoredtospecificorganizationalcontexts,but alsoemphasizes theprocessthatfacilitatestheassessmentitself.Assuggestedby other researchers, the guidelines and principles that were originally developed to guide LCA applications, proved to be highlyeffectiveinpractice,asdemonstratedbythecasestudyat Liander.

Limitationsandfutureresearch

Even though the LCV methodology calls for an explicit formulationandreﬂectiononthegoalandscopeoftheassessment, theprocessofarrivingatasuitableformulationforthisremainsa challengein practicethat requiresattentionin future research. Similarly, the Value Breakdown Structures that quantitatively capture value factors for an AM organization, proved to be challenging to develop and agree upon in practice, not only becausesomeofthesevaluefactorscanbesubjective,but also becausetheywereincontinuous_ﬂuxduringtheresearchperiod. Aninterestingavenueforfutureresearchcouldbetohelpstructure VBSforparticularorganizationsorindustrialsectorsusingsimilar principlesasthoseemployedinimpactassessmentmethodsfor LCA.

Additionally,theapplicationof theLCVmethodologyatDSO Liandermainlyresultedinmodelingandavoiding‘bad’impacts, suchas costs, outage risk, and environmental damages.‘Good’ impactssuchasrevenuewerepossiblebutwerealsomuchless common,andsometimesonlydescribedqualitatively,insteadof beingincludedinthemodelquantitatively.Whetherthisisdueto thechallengingnatureofarticulatingvalue,orbecausethisisa remnantofthetendencyofbothLCCandLCA,whichLCVisbased

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on, to focuson‘bad’ impacts, remainsa questionthat requires furtherinvestigation.

Declarationofinterest

Theauthorshavenocompetingintereststodeclare. Acknowledgments

TheauthorswishtothankLianderN.V.forthefundingofthis researchproject.TheauthorswouldalsoliketothankLianderfor their participation in testing this research, especially the pro-fessionals that were involved in the application and practical evaluationofthemethod.

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