At least once in our lives, we have regretted buying something purely as a result of attractive offers offering cheaper prices, when the item consequently ended up being expensive, thanks to its constant maintenance costs. These small mishaps don’t really affect us much, but what if the same happens when the money invested is extremely high? Or if that particular commodity negatively affects a person’s everyday life?
Life cycle cost or in short, LCC, is an approach to cost estimation where the total cost of an asset or a product over its entire life is calculated.
Life cycle costing provides a realistic rough estimate of the expenditures required to buy and maintain an asset throughout its lifetime. Because of this, LCC is also known as “cradle to grave” or “womb to tomb” costs.
Generally, while looking to buy a product, we tend to go for the cheaper ones. But more often than not, these products end up having higher maintenance and operating costs which tend to become gradually expensive. When these costs keep adding up, it becomes higher than the other alternative products which were much more expensive in the first place, but have lower maintenance costs.
Although, as you can guess, calculating LCC for every single product, especially in a large-scale project is time-consuming, it is highly important that it is done. It can uncover all kinds of costs and ultimately make decision-making easy. Life cycle costing not only enables efficient planning but also helps to cut costs along the way. It is especially useful in long-term projects.
Let’s take a hypothetical situation where there are two different types of products, A (expensive initial cost) and B (cheaper initial cost), which achieve the same task. Calculating the life cycle costing of the two can reveal which product can be more profitable in the long run.
As you can see, even though product A had higher initial cost (buying and setting up), it has relatively lower maintenance and operating costs, making it cheaper than product B in the long run.
The life cycle cost analysis has the following advantages:
In the architecture industry, life cycle costing aids in managing and keeping track of precise budgets of the products.
Life cycle costing enables us to make better decisions with regards to our investments. Whether the product or service is big or small, while constructing something large scale, the costs add up to a bigger value. Hence, it is important to know when the money we invested comes back to our pockets, if at all.
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