Life Cycle Costing

The life cycle of a product or system is the period of time from when it is first acquired or installed until it is finally retired from service. Life cycle costing is a tool that can be used to assess the affordability of a product or system throughout its entire life cycle.

In order to calculate the life cycle cost of a product or system, all costs associated with acquiring, operating, and dispose of the item must be considered. These costs can be categorized into four main categories:

1. Acquisition costs: These are the costs incurred to purchase the item and get it ready for use. They include the cost of the item itself, as well as any taxes, shipping, installation, and training costs.

2. Operating costs: These are the ongoing costs associated with using and maintaining the item. They include things like fuel, repairs and maintenance, utilities, and depreciation.

3. Disposal costs: These are the costs associated with disposing of the item when it is no longer needed. They can include recycling fees, landfill charges, and demolition costs.

4. Opportunity costs: These are the opportunity losses associated with not having the use of funds during the time that they are tied up in an asset (i.e., the time value of money).

By taking all of these costs into account, decision-makers can get a more complete picture of the true cost of owning and operating a product or system over its entire life cycle.