Life Cycle Costing
- IntelData Pty Ltd | Asset Management and Business
- Feb 1, 2016
- 1 min read
Introduction
The life cycle cost is the sum of all costs incurred during the life span of an item. The term life cycle costing first appeared in 1965 in a document entitled “Life Cycle Costing in Equipment Procurement” prepared by the Logistics Management Institute for the United States Department of Defence. A product’s operation and maintenance costs are a major element of its life cycle cost.
Major steps involved in life cycle costing with respect to product procurement are shown in Figure 1.
Advantages and Disadvantages of LCC
Some of the major benefits of life cycle costing are as follows:
It is a useful tool for comparing the cost of competing projects and products.
It is a useful tool for making decisions associated with equipment replacement.
It is a useful tool for controlling program costs.
It is a useful tool for selecting among competing contractors.
It is a useful tool for conducting planning and budgeting
Some of the disadvantages of life cycle costing are that it is time consuming, expensive, and it is a trying task to collect required data.
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