Holistic investment decisions based on life cycle models

Panel: 5. Business models and financing: established practice and innovative approaches

This is a peer-reviewed paper.

Author:
Matthias Harsch, LCS Life Cycle Simulation GmbH, Germany

Abstract

In today’s society characterized by digitalization and global markets, companies cannot solely base their decisions upon economic criteria. In fact it is common sense that ignoring environmental aspects is not an option for a company that wants to be continuously successful.

However, when it comes to strategic investments often the traditional concept of decision making is applied which focuses on the short-term investment and amortization periods mainly. By implementing Life Cycle Thinking (LCT) through life cycle models a whole new range of economic aspects becomes visible that might lead to overall more efficient investment at less cost over the entire life cycle. As a by-product, economic efficiency often comes along with environmental benefits as well.

For sustainable investment decisions it is crucial to execute a life cycle based comparison of available technologies or offered systems. This analysis has to be based on the technological characteristics of the systems meaning that a quantitative input-output analysis has to be done. Spreadsheed based life cycle models, developed by LCS Life Cycle Simulation GmbH, can help to structure and document the analysis and support a transparent comparison of technological key parameters. Derived from that a thorough cost analysis can be done. Cost contributors can be identified along the life cycle of capital goods. A holistic technology benchmark reveals economic strengths, weaknesses and potentials. Once a Life Cycle Model is built-up it can be calibrated with actual cost data to run sensitivity and scenario analysis for ongoing monitoring and continuous improvement.

Different business cases will show the successful application of spreadsheet based Life Cycle models for investment decisions.