OSRAM: talking about Cost and Value Engineering

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In this article we’re moving on to talk about the third in our list of specification priorities: COST. We’ve looked at RELIABILITY, because who would want to use a product that doesn’t work, and we’ve looked at PERFORMANCE, because who would want to use a product that isn’t good at what it does. Now we’re obliged to ask the question; can we afford it?

This is surely the simplest question of all. After all, if its not the cheapest product on offer, there’s no point in pursuing it any further. Isn’t that correct?

And it’s at this point that we need to take a deep breath and look again. Because if that’s our response to the Cost question, then we haven’t been looking deeply enough. Let’s go diving.

When we started using LEDs we not only changed the way that luminaires are designed and built, we also changed the way that Light Economics was measured.

Let’s briefly go back to pre-2010. This is how it worked:

  1. Install a fixture and insert the lamp.
  2. A few thousand hours down the line, change the exhausted lamps for a new one.
  3. Repeat for as long as it makes sense to do so.
  4. When the fixture starts to fall apart, or is no longer relevant, discard and install new fixture.
  5. Repeat steps 2 – 5.

The key to this process was the regular light upgrade of replacing the light source – something that we don’t expect to do with an LED.

With the LED we learn to ‘Pay Forward’.

The raison d’etre of the LED is to provide consistent illumination at a fraction of the energy cost, when in use. But to achieve those savings it’s vital that the LED luminaire carries on working for many more thousands of hours than was ever the case with even the most efficient of pre-LED lamps.

The numbers are still startling:

  • Tungsten lamps lasted 1000 hours.
  • Tungsten halogen lamps lasted 2000-4000 hours.
  • Fluorescent lamps lasted 6000-12000 hours.
  • Metal halide lamps lasted 8000-12000 hours.

The typical LED is expected to perform for up to 50,000 hours.

In practice it means that an LED installation could work without intervention for up to twenty years.

What does this mean when we consider the COST of a product?

There are four factors that need to be taken into consideration before we’re able to judge the cost-effectiveness of any lighting solution.

  1.     The capital cost
  2.     The running cost
  3.     The operating cost
  4.     The replacement cost

Let’s look at these in turn:

1.    Capital cost.
We all know how this works. Project budgets are set against how much a thing costs to BUY. Capital expenditure is the only thing that is considered in the purchase of equipment. It doesn’t tell the whole story.

2.    Running cost
LEDs are extremely energy efficient, but they are not all equal. Although the actual numbers have reduced to a marginal level, the actual energy cost of one LED installation set against an alternative is still an important factor in determining cost effectiveness, because we are putting figures together that extend over YEARS.

3. Operating cost
Beyond the cost of the energy taken in lighting, we look for operating costs to be as near to zero as possible. There is no regular lamp change regime to deal with, which leaves any ongoing costs down to the cleaning schedule -we hope.

4.Replacement cost
Early LED luminaires had to be scrapped (recycled)entirely once the LED light source and/or its driver was exhausted. Design thinking has recognised the environmental wastage inherent in that practice. From now on, we should only expect to swap-out exhausted components, not the entire fixture.

So where is the real cost of an LED lighting installation?

In an ideal, well-specified, world, the cost graph would look something like this. This graph is based on the cost comparison described below.

Capital expenditure seems quite high, but from there on it’s a simple matter of paying the energy bills.

But there is that other option; the one that ‘saves money’, the one that we see when we squint through the lens of conventional Value Engineering.

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And here’s a very different graph. We can see a much lower capital spend, the typical Value Engineering gambit. And according to the supplier’s data, the product performs exactly the same as the specified product. After all, the energy costs and the light output figures are the same.

But its not the same product.

In this scenario, light output comes from stressed components running at their limits. Early failures mean that the entire system collapses and a new installation is required. Unfortunately, if lessons have not been learned, the same pattern of failure continues throughout the life of the installation.

This does not save money. This costs more money; substantially more money than installing a quality product in the first place. Let’s put the two graphs together and see how the costs accumulate year-on-year. The Value Engineered solution performs well for the first couple of years, apparently justifying the decision to de-spec, but then the failure rate kicks in and, in order that the client maintains the light performance that they paid for in the first place, the entire installation needs to be changed . . . again . .  and again  . . . and again . . .

Where does the money go?

These graphs are based on an imaginary project. We’ve assumed a straightforward cove lighting installation in a commercial building. We’ve based the design, and the costs, on 100m of continuous OSRAM LINEARlight FLEX, fitted into an aluminium profile.

·    The energy rating of the LED tape is 10W/m. That provides us with an energy load of 1kW.

·    The annual usage has been estimated at: 5000hours.

·    The expected lifetime of the installation is ten years, or 50000 hours in total.

If we look at the data for the OSRAM LINEARlight FLEX we can see that:

·    the calculated operating lifetime of the OSRAM LINEARlight FLEX is: 60,000 hours (L90).

·    the calculated operating life of an OSRAM driver is 100,000 hours.

This suggests that the installation will not need to be replaced during its planned lifetime. In fact, the data suggests that the installation may still have a few years of functional life left within it.

We can turn these figures into financial costs:

1.    To keep the numbers simple, let’s say that the capital cost is £100/linear metre = £10,000.00.

For the installation, we’ll add a labour cost (@£25/m) = £10,000.00 + £2,500.00 = £12,500.00

2.    Annual energy cost: 5000kWh (at, say, 17p/kWh) = £850.00.

For the intended lifetime: £850 pa is £8,500 over 10 years (at current prices).

3.    Annual operating cost: £0.00 (maintenance-free)

Over the 10-year lifetime of the installation the WHOLE LIFE COST amounts to (12,500 + £8500 =) £21,000.00.

And that, we can say, is the baseline picture of a good quality LED installation.

But what happens if Value Engineering gets involved:

In order to justify change, the headline performance numbers need to be the same, but ‘significant’ capital cost savings are still possible. A likely product is sourced at 50% of the specified system, at £50 per linear metre.

But there is a hidden quid-pro-quo that hasn’t been taken into account. While OSRAM is happy to provide lifetime figures, the cheaper product is far more vague, with good reason. The cheaper capital cost conceals an operational lifetime of only 10,000 hours. The capital cost savings have come from alack of quality in the electronic components.

The new picture looks like this:

1.    Capital cost of VE luminaires: £50/m.

For the installation, (capital cost) £5,000.00 + (labour cost) £2,500.00  = £7,500.00

2.    Annual energy cost: 5000kWh (at, say, 17p/kWh) = £850 per luminaire.

For the intended lifetime: £850 pa is £8,500 over 10 years (at current prices).

3.    Operating costs are increased due to the need to replace failed equipment.

The LED profile and drivers require replacement after 10,000 hours (two years)
According to the data, the installation will need to be replaced FOUR times during the planned operating lifetime.

Cost of FOUR replacement installations across ten years: £7,500.00 x 4 = £30,000.00

LIFETIME COST: Putting those sums together: £7,500 (CapEx) + £8,500 (energy)  + £30,000 (OpEx) = £46,000.00

Over the 10-year lifetime of the installation the VE option COST now amounts to over TWICE the cost of the original ‘expensive’ option.

Let’s look at that cumulative cost graph again:

How does this happen?

The cost evaluation of a lighting installation has not yet caught up with the reality of LED technology. VE still assumes that operating costs throughout the lifetime of an installation are ‘cost-neutral’ across all ‘equal and approved’ options. But this is no longer the case. Issues of RELIABILITY and PERFORMANCE influence and determine the real-life costs of a lighting installation.

There is a huge percentage difference between the Capital Cost and the Whole Life Cost of an LED installation. In our example, the capital cost of the higher quality specification amounts to less than half of its Whole Life costs. In order to reap the rewards of this ‘paying forward’ planning, we encourage specifiers and contract managers to re-set their old prejudices and to appreciate the important of Whole Life Costing.

What are the factors that are not considered in a Value Engineering exercise?

  • Lower cost LED tape is likely to have fewer LEDs on-board. This leads to a less uniform light distribution that shows up as a lines of bright spots on the diffuser.
  • Because there are fewer LEDs in the array, the LED need to be driven harder in order to achieve an equivalent light output to the original specification.
  • Over-driven LEDs suffer thermal stress that discolours the phosphor, ‘browning’ the light and causing colour inconsistency and lower light output.
  • There is very little, if any, voltage regulation in cheaper LED tape products. Voltage drop along the length of a tape leads to visible light drop-off along the length of the tape.
  • One vital aspect of linear LED lighting is the likelihood that the installation will be integrated into architectural detailing. This is the great leap-forward in spatial design that the LED has brought us. But it is only viable when early failure has been ‘specified out’ of the process. Removal and making-good of architectural features can run to many thousands of pounds and the client will certainly come looking for recompense if that situation arises because of a poor quality installation.

These are typical impacts that are exacerbated by the use of poorer materials and inferior build quality in the LED tape.  And that is just the material quality of the LED tape. We can add to that the impacts of such cheaper specifications once the equipment arrives on site.

  • The contractor is often obliged to solder connections on site, leading to issues around solder quality, which will not be testing for their quality;
  • dirt and paint finds its way into the LED channels, onto the LED chips and staining the diffusers;
  • inappropriate fixing of the LED tape to the mounting surface, ignoring thermal requirements and manufacturer’s guidance.

Maybe the client shrugs their corporate shoulders and decides not to replace failing components. So what? It won’t be the first time that any of us have seen lighting installations that are clearly beyond their operating life. It says a lot about the company that can’t be bothered to keep its business fresh and alive – and it says a lot more about their attitude towards their customers’ visitor experience.

Flexible LED lighting solutions for architects, lighting designers and installers

With the rapid progress of LED technology, lighting design is becoming more and more versatile every year. This is even more the case when it comes to the huge number of flexible LED systems which OSRAM now presents in its updated LINEARlight FLEX catalog.

Catalogue highlights: LINEARlight Rigid FINESSE and LINEARlight Rigid NICHE

The innovative LINEARlight Rigid FINESSE system is based on modular LED components, opening up a wealth of all-new lighting design options for both indoor and outdoor applications. The products will be available from autumn 2019 onwards.

Another innovation you should not miss as a reader and user: the LINEARlight Rigid NICHE, a miniaturized lighting application which even fits into confined spaces and is simply ideal to highlight certain areas in a shop.

A world of information at your fingertips

In more than 200 pages, the OSRAM LINEARlight FLEX catalog provides not only technical data on all FLEX products and necessary accessories, but also a great deal of illustratively presented information, as well as concrete ideas on how to implement various projects with these durable, premium-quality products.

But the catalog has even more to offer: Step by step, it explains the most important aspects in terms of “creative lighting design with flexible LED system solutions” – from selecting the lighting quality you require and making use of helpful online tools right up to choosing the perfect light management system for your project.

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To discuss your UK project requirements, contact Karen Cawley at karen.cawley@osram.com.

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OSRAM: talking about Reliability – Performance – Cost

You can read the other articles in this series here:

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