Total Life Cost Definition

Total Life Cost (TLC) is an important concept in business and decision-making. It is a tool that helps organizations make decisions about resource allocation, product development, and marketing strategies. The goal of TLC is to minimize the total cost of ownership of a product or service over its entire life cycle.

TLC includes all costs associated with acquiring, using, and disposing of a product or service. These costs can be direct or indirect, one-time or recurring, monetary or non-monetary. Monetary costs include things like purchase price, operating expenses, and maintenance costs. Non-monetary costs include things like opportunity cost and environmental impact.

To calculate TLC, organizations first need to identify all relevant cost categories and estimate the cost for each category over the life cycle of the product or service. Then, they need to discount future costs to present value using a discount rate that reflects the time value of money and the riskiness of future cash flows. Finally, they need to sum up all the discounted costs to get the total life cycle cost.

The total life cycle cost provides valuable information for decision-makers because it takes into account all relevant costs over the entire life of a product or service. This makes it possible to compare different options and make informed decisions about resource allocation.