Life cycle costing model: Case study

Statement of the Problem:  life cycle costing model for Alstom company.

Alstom is the leading international company (with the headquarters in France) operating in rail transport markets. It is active in the fields of passenger transportation, signaling, and locomotives. Company’s subsidiary in Kazakhstan, called “Alstom Kazakhstan” (hereinafter – the Company), has more than 800 employees. In addition, it performs both production and maintenance of locomotives. The capstone project will focus on the maintenance operations of the Company.

Alston company repair operations

The Company supplies spare parts and performs repair operations for locomotives, primarily Prima T8 “KZ8A” и Prima M4 “KZ4AT” models. Company’s main clients for these maintenance operations are companies of Kazakhstan Temir Zholy group (Kazakhstan largest railway company). The Company is currently facing challenges with developing a proper life-cycle costing (LCC) model for spare parts for locomotives. An LCC model is a model which integrates data from all product’s lifecycle stages in a coherent and comprehensive manner. It also facilitates managerial decision-making. Overall, our work on the LCC for Alstom case will consist of two parts. The first part is the theoretical part on refining and improving the existing LCC model. The second part is the practical part where we will improve the Excel tool that Alstom uses for the LCC model, and make it more effective and efficient.


 Current Status of Alston company

The Company has previously developed an LCC model for spare parts using MS Excel. This existing model is reasonably functional and includes the main relevant elements. However based on preliminary evaluation it has certain drawbacks and limitations, such as:

  1.  The model’s overall structure might not include all the relevant elements, based on the current industry best practices;
  2.   Functionality of model in Excel is limited, e.g. user tasks (data import, pre-processing, analysis) require manual Excel operations and are not automated, also the model does not use the available Excel tools, such as Power suite;
  3.  The model’s visual appearance and interface lacks decent design, visual aids and interactivity functions, and therefore the model is not readily usable / understandable by Company’s management and employees. Additionally, those directly involved with its development.

Objectives & Outcomes

● To evaluate and refine the existing Company’s LCC model . Specifically, some potential improvements which will be incorporated are:

  1.  Concepts of financial modelling, such as considering the time value of money;
  2.  Analysis of patterns of seasonality (if determined to be appropriate);
  3.  The link to the Inventory Management needs (e.g., safety stock, reorder point, batch size, etc.)


EQ analysis, and accordingly inclusion of cost of storage and cost of ordering as model parameters

Investigation of procurement strategies

Maintenance planning

The examination of the main reliability indices; ○ Analysis of the replacement vs. repair decision;

Other relevant considerations taking into account Company’s industry best practices  operations.

To improve, modernize and make more functional the existing Excel application for LCC.  For example, Employing the Power suite of Excel (Query, Pivot, BI) for: automation of data collection and fusion using Power Query, development of Data Models using Power Pivot

To implement Information Management functions for the model that are currently missing or not functioning as required by the Company.

Document the resulting model for the purposes of future model maintenance and providing understandable instructions for the end users;

Development of a blueprint that may serve as a basis for implementation of the LCC model in an ERP system.

Proposed Methodology

  1. Literature review and analysis of existing best practice LCC models
  2. Development of an LCC model tailored for Alstom case
  3.  Improvement and modernizing the LCC tool in Excel
  4.  Obtaining feedback from the Company representatives and its incorporation into the model
  5.  Analysis of financial and operational improvements resulting from the LCC model implementation in the Company.

Additional Files

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