Decision-making in major investment projects with a life cycle cost: improvement with sensitivity analysis and sustainability assessment

Abstract

This study focuses on compressor station investments in Germany’s natural gas infrastructure, offering insights applicable to machinery, energy, and maintenance cost-driven decisions. A life cycle cost (LCC) analysis can guide investment choices; however, uncertainties in input data and future developments pose risks. The LCC-based studies encounter questions impacting their results and optimal selections. These uncertainties may lead to misallocations, emphasizing the need for careful consideration of investment decisions to avoid potential consequences and efficiently allocate limited funds. Various measures are available to mitigate the uncertainties and risks in LCC analyses. Recognized measures are deterministic and probabilistic. Seven case studies on investments in the natural gas infrastructure in Germany were analyzed in this context. In addition to the executed case studies, a case study from a scientific journal (published in 2001) was included in the analysis. The case studies were conducted by transmission system operators from 2005–2015, and a retrospective view made it possible to recognize whether the best options (due to the LCC analysis) were identified. Simulations were conducted with generated models using real historical input data such as energy costs. The re-calculation of the net present value or better discounted cumulated expenditure with real input data shows that the LCC analysis results are significantly dependent on the reliability of the input data and the prediction of their development. Therefore, validating the results using appropriate measures is mandatory. This study illustrates how sensitivity analysis can be used as a deterministic method to evaluate the LCC analysis results. A company’s success is increasingly determined by its sustainability. A pure LCC analysis is insufficient, so social, ecological, and economic sustainability assessments must be conducted. This study demonstrates the effectiveness of the weighted scoring method for sustainability assessments. Although this study relates to LCC in Germany’s natural gas infrastructure, the suggested process can be adopted for other investment projects comprising capital and operational expenditures.

Keywords

• decision-making
• life-cycle cost analysis
• case studies
• sensitivity analysis
• weighted scoring
• sustainability assessment