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Environmental Costs Impact on Product Life Cycle Cost

9 de noviembre de 2021

With the Circular Economy Package release by the European Commission on December 2015, european policies and directives related to environmental impact legal requirements are becoming more restrictive to stimulate the transition towards a Circular Economy.

Therefore, companies developing products and services with a “linear” approach, will inevitably see their environmental costs increase in the next future, as well as the risk of non-compliance against upcoming regulations.

What is an environmental cost?

Environmental cost is the cost arising from issues related to the environmental impact of an organization activities to be carried out for the production of goods and/or services. UNE 150011 provides a guidance for the assessment of environmental costs.

Among the most common types are those derived from licenses and authorizations, waste management, emissions, certifications as management systems, ecolabels, etc.

What is the impact of environmental costs in the cost of a product / service?

So then, the increasing tightening of legal requirements will necessarily lead companies to know their impact on the cost of the product / service, in the same way that the impact of raw materials or manufacturing processes costs are known. To do this, it will be needed to design products and services integrating the concept of Life Cycle Cost of a product / service (LCC).

What is the LCC and how is it used?

LCC is the cumulative cost of a product over its life cycle (from conception to disposal). According to IEC 60300-3-3 2005 standard, costs can be structured following the phases of the product life-cycle in different batches, according to the figure below.

This concept should be used for the development of cost models, a key tool needed to ensure obtaining the optimal technical solution of the product/service from the conceptual design phase.

How to use the LCC to know the impact of environmental costs on the product / service?

As a first step for the optimization/reduction of environmental costs, we help you, through the methodology described in the figure above, to identify the different environmental costs that may apply to your organization and to know its impact on the LCC of every unit of product or service, from conception to disposal. We take the following steps:

  • Step1Identification and quantifying of each environmental cost (waste management, certifications and authorizations, inspections, etc.)
  • Step2Identification of LCC batch to which the cost is to be allocated
  • Step3Analysis of cost recurrence (recurring, non recurring) and frequency (per unit, monthly, yearly, etc.)
  • Step4Allocation of unitary cost Ci to LCC batch (depending on manufacturing units / year, total manufactured units, operating years)

What environmental costs are arising from the installation of a sewage treatment plant ? What is their impact on the LCC of every product unit manufactured? These are some of the questions that we could answer using this methodology.

Follow the next post, where we will explain how to optimize environmental costs through the integration of all the potential recirculations of product, components and materials proposed by the Circular Economy approach.

Rethink smart leads to sustainability !!

“What is not defined can not be measured. What is not measured can not be improved. What is not improved, always degrades”. Lord Kelvin


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