July/August 2010

ISA Certified Automation Professional (CAP) program

CAP question

In the Lifecycle Economic Model, the Economic Profile is defined as Lifecycle Benefits less Lifecycle Costs.  Which statement below is true about the Lifecycle Economic Model?

A. Lifecycle Benefits can be realized from project years 1 through 5 only in order to comply with tax regulatory guidelines, regardless of the useful life of the project.

B. All Lifecycle Costs should be considered over the entire expected life of the project, with all costs calculated on a Net Present Value basis.

C. Lifecycle Costs for the project should include all costs to the operation, whether or not they were incurred as a result of the installation of the project.

D. Non-operational costs, such as engineering and construction costs, should not be considered as part of the Lifecycle Costs calculation, since they are one-time charges.

CAP answer

The correct answer is B: All Lifecycle Costs should be considered over the entire expected life of the project, with all costs calculated on a Net Present Value basis.  The entire expected life of the project must be considered in the Lifecycle Economic Model, and as a result, all benefits and costs must be adjusted for inflation, interest, risk, etc., by calculating all on a net present value basis.

Answer A is not correct because tax regulatory guidelines do not restrict the time period for being able to realize benefits or savings over the years of expected life for the project.  Tax guidelines, if they have any affect, will affect Lifecycle Costs, namely depreciation cost.

Answer C is not correct since the Lifecycle Costs for a project should include only those costs that are directly related to the installation and operation of the project scope.  Otherwise, the return to the organization due to installing the project would be understated.

Answer D is not correct since non-operational costs, such as engineering and construction costs, must be considered as part of the Lifecycle Costs.  These costs usually are a significant portion of the overall Lifecycle Costs on a net present value basis.

Reference: Martin, Peter G., Bottom-Line Automation, ISA, 2002.