What is a Life-Cycle Cost (LCC) and Life-Cycle Cost Analysis (LCA)
This article explains who LCC is used to evaluate the total cost of a investment throughout its entire life.
Table of contents
- Table of contents
- Definition
- Objectives of LCC
- LCC general considerations
- Risks of LCC
- Example of a LCC analysis
- References
Definition
Life-cycle cost (LCC), also called Whole-life cost (WLC), refers to the total cost of owning, operating, maintaining, and disposing of an asset or system over its entire useful life. So the buyer can make more cost-effective decisions in their procurement processes.
This concept is widely used in fields like engineering, construction, facilities management, and procurement to inform decision-making and optimize long-term costs, not just the initial purchase price.
Objectives of LCC
- Helps compare options beyond just the upfront cost.
- Identifies hidden or ongoing expenses.
- Supports decisions in procurement, sustainability, and efficiency.
LCC general considerations
- Initial acquisition costs (purchase and installation)
- Operating and maintenance costs (especially energy given that computers are energy consuming products with considerable operating costs)
- Other costs (such as residual value, environmental externalities, …)
Not all cost drivers are easily included in LCC. You should be aware of that and decide which elements to include in the LCC and which to consider separately as additional criteria, to select the best solution for your needs.
Risks of LCC
LCC requires a set of skills that may be lacking in various parts of the supply chain, and clients may not always be able to clearly define how an asset or system will be used over its lifetime. Even as organizations increasingly seek life-cycle costed plans for their projects or procurements, they may lack the expertise to interpret or apply these analyses effectively. This highlights a widespread need for comprehensive training in life-cycle costing across all relevant sectors and disciplines.
LCC is not an exact science. Beyond the challenges of estimating future costs, broader uncertainties and assumptions are involved. It is not just a matter of projecting expenses far into the future for any asset or system.
LCC doesn’t include every aspect of product performance, despite their growing importance to users, such as environmental impact or user safety. Nevertheless LCC is useful as long as its limitations are understood.