Applying a non‐deterministic conceptual life cycle costing model to manufacturing processes

Abstract

Purpose

The aim of this paper is to introduce uncertainty analysis within an environmentally extended input‐output technological model of life cycle costing. The application of this approach will be illustrated with reference to the ceramic floor tiles manufacturing process.

Design/methodology/approach

Input‐output analysis (IOA) provides a computational structure which is interesting for many applications within value chain analysis and business processes analysis. A technological model, which is built bottom‐upwards from the operations, warrants that production planning and corporate environmental accounting be closely related to cost accounting. Monte Carlo methods have been employed to assess how the uncertainty may affect the expected outcomes of the model.

Findings

It has been shown, when referring to a vertically‐integrated, multiproduct manufacturing process, how production and cost planning can be effectively and transparently integrated, also taking the product usage stage into account. The uncertainty of parameters has been explicitly addressed to reflect business reality, thus reducing risk while aiding management to take informed actions.

Research limitations/implications

The model is subject to all the assumptions characterizing IOA. Advanced issues such as non linearity and dynamics have not been addressed. These limitations can be seen as reasonable as long as the model is mostly tailored to situations where specialized information systems and competences about complex methods may be lacking, such as in many small and medium enterprises.

Practical implications

Developing a formal structure which is common to environmental, or other physically‐driven, assessments and cost accounting helps to identify and to understand those drivers that are relevant to both of them, especially the effects different design solutions may have on both material flows and the associated life cycle costs.

Originality/value

This approach integrates physical and monetary measures, making the computational mechanisms transparent. Unlike other microeconomic IOA models, the environmental extensions have been introduced. Uncertainty has been addressed with a focus on the easiness of implementing the model.

Citation

Settanni, E. and Emblemsvåg, J. (2010), "Applying a non‐deterministic conceptual life cycle costing model to manufacturing processes", Journal of Modelling in Management, Vol. 5 No. 3, pp. 220-262. https://doi.org/10.1108/17465661011092623