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SUMMARY: Life cycle costs (LCC) are cradle to grave costs summarized as an economics model of evaluating alternatives for equipment and projects. Engineering details drive LCC cost numbers for the economic calculations. The economics of proposals drives the scenario selection process. Good engineering proposals without economic justification are often uneconomical. Good engineering with good economics provide business successes. The LCC economic model provides better assessment of long-term cost effectiveness of projects than can be obtained with only first costs decisions. Keywords: life cycle cost, net present value, lowest long term cost of ownership, economics
1. LIFE CYCLE COST DEFINITIONS Life cycle cost is the total cost of ownership of machinery and equipment, including its cost of acquisition, operation, maintenance, conversion, and/or decommission (SAE 1999). LCC are summations of cost estimates from inception to disposal for both equipment and projects as determined by an analytical study and estimate of total costs experienced in annual time increments during the project life with consideration for the time value of money. The objective of LCC analysis is to choose the most cost effective approach from a series of alternatives(note alternatives is a plural word) to achieve the lowest long-term cost of ownership. LCC is an economic model over the project life span. Usually the cost of operation, maintenance, and disposal costs exceed all other first costs many times over (supporting costs are often 2-20 times greater than the initial procurement costs). The best balance among cost elements is achieved when the total LCC is minimized (Landers 1996). As with most engineering tools, LCC provides best results when both engineering art and science are merged with good judgment to build a sound business case for action. Businesses must summarize LCC results in net present value (NPV) format considering depreciation, taxes and the time value of money. Government organizations do not require inclusion of depreciation or taxes for LCC decisions but they must consider the time value of money.
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"A Life Cycle Cost Summary"
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