Using cost analysis to bringcircularity 

Life-cycle cost analysis is a powerful tool to make companies more resource-efficient and enable them to adopt new business models. There are, however, several factors that hinder its use. “Money talks”, says researcher Marianna Lena Kambanou.

Graphic illustration of circular economy. Circular economy in a simple way. petovarga

Resource effiency

In her thesis, Life Cycle Costing: Supporting companies towards a circular economy, she investigates how life-cycle costing (LCC) can be used by companies to select and start to use circular business models. One example is to rent equipment out, and include maintenance in the deal. She also investigates the barriers that hinder such transitions.

Marianna Lena Kambanou."I am seriously worried about the future. As researcher, I want to be part of the solution", says Marianna  Lena Kambanou when asked to describe her motives.

Life-cycle cost analysis is a method to calculate the cost that a product or service incurs during its complete life cycle. It can be combined with life-cycle analysis, which estimates the impact on the environment of goods and services during their life cycle. And to put it simply, a circular economy is one in which goods are seen as resources to be reused, rather than being consumed and becoming waste.

The thesis is based on case studies of four manufacturing companies, from small to large, with interviews, focus groups and analysis of costs and documents.

“Calculating costs and quantifying alternatives are powerful methods”, says Marianna Lena Kambanou.

“Economics is a language that everyone understands – it’s more universal than English. This means it can be an important tool for change.”

Design is affected

The thesis describes how life-cycle cost analysis can be used by companies in several ways and for different purposes. It can be used to calculate differences in costs and to assess the circularity of alternatives. It increases knowledge and understanding of circular alternatives, and forms an important basis for discussions within the company. It makes the development of environmentally sensitive leadership easier, and helps to overcome barriers along the way.

Cost analysis can also directly affect the design of the products. One of the companies in the study manufactures beach flags, which it has in the past sold to customers. Now, however, it rents them out. Instead of being discarded after a single use, the metal parts of the flags can now be reused up to ten times. The next step may be to develop parts that can be reused an even greater number of times.

“A lot of this is just common sense. But it’s also a major advantage to be able to show in black and white the results of the alternatives”, says Marianna Lena Kambanou.

Important definitions

There may be barriers to the use of life-cycle cost analysis in the form of the attitudes of some individuals, or the collected knowledge of the company.

The analyses require collaboration between different departments, and this may be lacking. They also need data that have not been collected until now. I was surprised by how many costs are estimated, most of them by gut feeling, without any exact information”, says Marianna Lena Kambanou.

The methods of performing life-cycle cost analysis also need to be improved and standardised. Such a simple but fundamental question as “What is a life cycle?” is often answered differently by different companies – and indeed within research. And it’s not obvious which costs are to be included and how they are to be calculated.

“Unfortunately most people use different methods, and the obvious question then arises whether the analysis is meaningful”, says Marianna Lena Kambanou. She answers the question herself: “I’m convinced it is, since it can even so give a rough estimate. And most importantly, I see LCC as a tool that is to be continuously developed and that the companies can learn from.”

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