Equipment lifecycle cost analysis lcca is typically used as one component of the equipment fleet management process and allows the fleet manager to make repair,equipment replacement, and retention decisions on the basis of a given piece of equipments economic life. Life cycle costing helps a company determine whether or not a product is going to be profitable. Lifecycle cost analysis is conducted in five steps. A new method to calculate the life cycle costs of capital goods, such as machines and manufacturing systems, is presented to anticipate the life cycle costs. Product life cycle costing applied to manufacturing. More conventional costing methods tend to focus solely on the resources used during the manufacturing stage, including materials, labour, and variable overheads. Lifecycle costing of new processes, materials, and products fissac. Life cycle costing lcc is a technique to estimate the total cost of ownership ogc, 2003.
Life cycle costing in construction with one click lca software. The harvard life cycle costing policy and calculator was designed to aid harvard decision makers in considering all present and future costs related to new construction, renovation, equipment replacement, or any other project that involves upfront and ongoing expenditures. Through lcc one seeks to minimize the cost of obtaining a cer tain level of output. And while life cycle costing has been covered in journals and conference proceedings, few, if any, books have gathered this information into an easily accessible resource. You will have seen an example of a life cycle cost analysis. The goal of this approach is to protect resources and maximize effectiveness by means of life cycle assessment, product data management, technical support and, last but not least, life cycle costing. Life cycle costing lcc hereafter was first used in the united states by the department of defense. Life cycle costing for engineers article pdf available in construction management and economics 2810.
The concept of life cycle costing life cycle costing is an economic evaluation technique that concerns the assessment of the total cost of. The life cycle impact on each of these items is shown in exhibit 17. Hence life cycle costing related with the time stream of costs and benefits that flow throughout the life of the project. Approach on life cycle costing lcc and its benefits. In the building and construction industry, lcc is applied to quantifying costs of whole buildings, systems, andor building components and materials. A product based classification scheme would not help, as alternatives are identified on the basis of their functionality and not on their design. The total cost mentioned above includes the cost mentioned in table 2. Life cycle costing lcc is defined in the international organization for standardization standard, buildings and constructed assets, servicelife planning, part 5.
Lifecycle costing requires knowledge of anticipated system reliability, utilization and maintenance procedures because they help in understanding of the relationship. Initial costs operating costs disposal costs life cycle costing. Life cycle costing is the process of compiling all costs that the owner or producer of an asset will incur over its lifespan. Life cycle cost assessment lcca systematic process for evaluating the life cycle cost of a product or service by identifying environmental consequences and assigning measures of monetary value to those consequences 5,31. Program delivery support functions that enable the delivery of cdots programs and services. Life cycle costing is applied initially at a broad brush level. Life cycle costing helps companies to be aware of where their products are in their life cycles, because in addition to the sales effects, the lifecycle stage may have a tremendous impact on costs and profits. An integrated environment for life cycle costing in. Definition of the life cycle costing construction essay. Life cycle assessment lca is the most defined and developed life cycle approach. Table 4 demonstrates the total costing of ups1 which includes all the infrastructure costing over a period of 8 years. Issue 3 a general appreciation for lcc is critical to change the procurement mindset from the best value for moneyto the best value across the asset life cycle.
The washcost project 200820 set out to fill a glaring gap in information about. Life cycle costing helps companies to be aware of where their products are in their life cycles, because in addition to the sales effects, the life cycle stage may have a tremendous impact on costs and profits. Aug 26, 2016 life cycle cost analysis lcca is a tool to determine the most costeffective option among different competing alternatives to purchase, own, operate, maintain and, finally, dispose of an object or process, when each is equally appropriate to be. The vice provost for land and buildings convened a team of staff from departments within land and buildings, along. Life cycle costing is the comparison of alternatives, the life cycle costs and consequently the lcc data should be presented in a way that enables that comparison. Costs will later be refined in the course of making a firm acquisition decision. In his definition of lcc almost 20 years ago woodward.
The importance of facility management in the life cycling costing it is important to know the costs of facility management in all the phases of the life cycle of a building since it leads to relevant managerial decisions of investment and wellfounded by estimating the complete costs. Strategic projectsthe 28 high priority projects that have been committed for. As opposed to more commonly used roibased calculations, lcc is conducted based on longterm costs and savings, keeping in mind the fact that they are interconnected. There are number of term use in industry to identify different stages in the life cycle costing techniques, hence flowing are the specially use in construction industry. Product acquisition involves an examination of the support cost of major equipment over its total life years. Life cycle costing is a methodology where costs of a given asset are considered throughout its life cycle 201424eu art. In summary, if any meaning is to be attached to the concept of the total cost of a system or product, where the indi vidual cost components are distributed over time. Lcc, by definition, refers to an analysis technique which encom passes all costs associated with a product from its inception to its. Life cycle costing is concerned with optimising value for money in the ownership of physical assets by taking into consideration all the cost factors relating to the asset during its operational life. Life cycle costing is a system that tracks and accumulates the actual costs and revenues attributable to cost. It covers all advances and recent progress in life cycle costing from its history and definitions to current approaches.
Techniques, models and applications offers a comprehensive approach to the entire field, and treats it in such a way that the reader requires no previous. Lifecycle costingiso 156865 as an economic assessment considering all agreed projected significant and relevant cost flows over a period. It compares initial investment options and identifies the least cost alternatives for a twenty year period. Issue 1 life cycle costing is not yet considered to be a critical component of spp. Mobilityprograms services and projects that provide for the movement of people, goods and information.
Executive summary the research project was initiated by the colorado department of transportation cdot to develop guidelines for determining the longterm costs of adding additional capacity and other related transportation improvements to the state highway and bridge system. This enables decisions on acquisition, maintenance, refurbishment or disposal to be made in the light of full cost implications. What is life cycle costing life cycle costing lcc is a methodology that enables you to incorporate costs and benefits that occur over the entire life cycle of a product into your procurement decisions rather than considering the initial capital cost of a product only costs and benefits. In procurement, it aims to determine the lowest cost of ownership of a fixed asset purchase price, installation, operation, maintenance and upgrading, disposal, and other costs during the assets economic life.
Eliminating the need to consult many different sources, life cycle costing for engineers brings together uptodate life cycle costing concepts and explains their application. Issue 2 making a decision on the basis of lcc may make it more expensive upfront. Life cycle costing analysis can be carried out during any phase of an assets life cycle. Wlcc in buildings whole life cycle costing is a relatively new concept in construction, although this concept is based on analytical methods that have existed for several years. Procurement and production costing technique that considers all life cycle costs. It can be used to provide input to decisions regarding asset design, manufacture, installation, operation, maintenance support, renewalrefurbishment and disposal. Lcca is a term that highlights the cost ing aspect of life cycle assessment lcaa 28 add cost information to lca. The washcost project 200820 set out to fill a glaring gap in information about the costs of. The factors affecting the investment life of a project 3. Despite the existence of many life cycle costing lcc.
Life cycle costing lcc life cycle costing, lcc, is the process of economic analysis to asses the total cost of ownership of a product, including its cost of installation, operation, maintenance, conversion, andor decommission. Understanding the cost of water and sanitation services life cycle costing tools. A common european methodology for life cycle costing 2007. Life cycle costing lcc, by definition, refers to an analysis technique which encom passes all costs associated with a product from its inception to its disposal. The research project was initiated by the colorado department of transportation cdot to develop guidelines for determining the longterm costs of adding additional capacity and other related transportation improvements to the state highway and bridge system. Lifecycle cost analysis lcca is a tool to determine the most costeffective option among different competing alternatives to purchase, own, operate, maintain and, finally, dispose of an object or process, when each is equally appropriate to be. Life cycle costingtheory, information acquisition and. Optimising the tradeoff between those cost factors will give the minimum life cycle cost of the asset. The costs and values included in a life cycle costing exercise 5. Target costing and lifecycle costing can be regarded as relatively modern advances in management accounting, so it is worth first looking at the approach taken by conventional costing. Life cycle costing colorado department of transportation 1 1. Risk analysis in the theory of whole lifecycle costing. Lifecycle costing financial definition of lifecycle costing. Techniques, models and applications offers a comprehensive approach to the entire field, and treats it in such a way that the reader requires no previous knowledge to understand the contents.
The primary application of life cycle cost analysis lcca can be seen in its use as a tool for effective selection between project alternatives, at any stage of the life cycle of the project. Depending on the type of equipment, support costs may range from 10 to 100 times the cost of acquisition. Purpose life cycle costing lcc is an important economic analysis used in the selection of alternatives that impact both pending and future costs. It is an extensive method designed for accounting all relevant environmental impacts of products and services. In capital budgeting, the total cost of ownership is compiled and then reduced to its present value in order to determi. More conventional costing methods tend to focus solely on the resources used during the manufacturing. The lifecycle impact on each of these items is shown in exhibit 17. Pdf life cycle cost lcc is an important technique for evaluating the total cost of. Understanding the cost of water and sanitation services lifecycle costing tools.
The importance of life cycle costing information technology essay. The process of life cycle costing involves evaluating different design options, and determining the most costeffective solution to meeting system requirements woodward, 1997. The aim of life cycle costing at the acquisition stage is to ensure that all relevant costs are identified, and that through life costs are adequately considered. Bridge, cost, life cycle cost analysis, procurement, investment, management. A life cycle costing approach din en 6030033 the six phase model of a product life in the following, the six phases model of a general product life cycle, which is the basis of the lcc measurement approach in the din norm, will be explained. It concludes with the directions for future work and conclusions. The final end of life phase is the disposal and decommissioning costs associated with the removal of the product. The process of lifecycle costing involves evaluating different design options, and determining the most costeffective solution to meeting system requirements woodward, 1997. In capital budgeting, the total cost of ownership is compiled and then reduced to its present value in order to determine the expected return on investment roi and net cash flows. As defined in the a dictionary of business 1996, p. It is calculated from the beginning of a products research to its estimated date of withdrawal from the market. Life cycle costing gives governmental agencies a standard for evaluating the quality and total cost of equipment being considered for purchase.
Use of life cycle assessment lca in global companies. Life cycle costing requires knowledge of anticipated system reliability, utilization and maintenance procedures because they help in understanding of the relationship. Life cycle costing colorado department of transportation 3 3. May 27, 2014 life cycle costing lcc life cycle costing, lcc, is the process of economic analysis to asses the total cost of ownership of a product, including its cost of installation, operation, maintenance, conversion, andor decommission. Life cycle costing, also known as the whole life costing, is a costing technique to establish the total cost of ownership. Lifecycle costing is a methodology where costs of a given asset are considered throughout its lifecycle 201424eu art.
You will understand the concept of a life cycle asset management plan. Typically, conventional costing attempts to work out the cost of producing an item incorporating the costs of resources that are currently used or consumed. An estimate of all expenses a company incurs and derives from a product. The general concept of a life cycle cost is not new. Lifecycle costing lcc, a cost projection method typically associated with engineering, allows for the accurate prediction of the total costs a product will incur throughout its lifecycle. It will save you guesswork in budgeting and will save tax dollars. Meshing this technique with activitybased costing, risk management, and monte carlo analytical methods, jan emblemsvag offers a broad range of. Lcc is often used to better manage the costs of a building project or material throughout its life cycle. Life cycle costing analysis lcca or lcc for short is the most accurate way to increase your buildings project savings by comparing different design alternatives. Life cycle costing not only promotes supplier accountability, but provides you the highest quality product with the lowest. Life cycle costing lcc is the process of identifying and documenting all the costs involved over the life of an asset.
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