Life-Cycle Costs Definition
The life-cycle cost of a product or system is the total cost of ownership from cradle to grave. This includes the purchase price, installation costs, operating costs, maintenance costs, and disposal costs. Life-cycle costing is a tool for making decisions about which products or systems to select on the basis of their total cost of ownership.
Life-cycle costing takes into account all of the costs associated with owning and operating a product or system over its life span. This includes both direct and indirect costs. Direct costs are those that can be readily associated with the purchase, installation, operation, and disposal of a product or system. Indirect costs are those that are more difficult to quantify and may include such things as opportunity cost, risk, environmental impact, and user productivity.
One advantage of life-cycle costing is that it allows decision makers to compare the total cost of ownership of different products or systems. This information can be used to select the option that offers the best value for money. Another advantage is that it forces decision makers to consider all of the costs associated with a product or system, not just the initial purchase price. This can lead to improved decision making about which products or systems to select.
A disadvantage of life-cycle costing is that it can be time consuming and expensive to gather all of the data necessary to do a complete analysis. Additionally, some of the factors that need to be considered (such as opportunity cost) may be difficult to
