Life cycle costing helps companies to be aware of where their products are in their life cycles, because in addition to the sales effects, the lifecycle stage may have a tremendous impact on costs and profits. Lifecycle costing lcc is an essential element of capital management in. Lifecycle cost analysis is a method of assessing which asset option, will be the most economical over an extended period of time international infrastructure management manual. Fundamentals of asset management 5 concepts of cost particularly useful to am current replacement cost the full cost to replace an asset in its current operating environment life cycle cost the total cost of an item throughout its life, including the costs of planning, design, acquisition, operations, maintenance, and. Life cycle costing lcc, by definition, refers to an analysis technique which encom passes all costs associated with a product from its inception to its disposal. A design and implementation model for life cycle cost management.
Section life cycle management background information. Life cycle cost analysis lcca is a datadriven tool that provides a detailed account of the total costs of a project over its expected life. A life cycle cost analysis involves the analysis of the costs of a system or a component over its entire life span. For effective implementation of life cycle costing in road planning, design and management, different considerations need to be understood.
Operational and minor maintenance expenditure opex refers to. Abcs of life cycle cost analysis an informed decision is a responsible decision life cycle cost analysis is a process of evaluating total costs over the life of an asset the analysis provides a means to compare the costs of alternatives reasonable assumptions can simplify the analysis and still result in a useful comparison. Lifecycle cost analysis for management of highway assets. It takes into account all costs of acquiring, owning, and disposing of a building or building system. The principles and process for conducting a lifecycle. Lifecycle costing cannot be used for financial reporting.
Lifecycle cost analysis life cycle cost analysis design. Typically, conventional costing attempts to work out the cost of producing an item incorporating the costs of resources that are currently used or consumed. Establish a longterm focus for improving and preserving the system. The lcc equation is determined in accordance with the guidelines of europump and the hydraulic institute. This is a key concept for your pmp preparation pertaining to the project cost management knowledge area. Not only the acquisition costs associated with new systems, e. When making funding decisions under constrained budgets, it is. Develop maintenance strategies that consider longterm investment needs. Despite this revitalised focus on lcc, data management continues to be a significant obstacle for its. Lifecycle cost analysis allows a comparison of two different options of different expected lifecycles and the total cost of one option over its expected lifecycle. Definitions and aspects of life cycle assessment the lca process is governed under iso 14000, the series of international standards addressing environmental management. Lcc is an economic model over the project life span. The product life cycle plc the product life cycle is the period of time over which an item is developed, brought to market and eventually removed from the market. Nist handbook 5 life cycle costing for the federal energy management program explains and amplifies the lcc rules of 10 c.
The cost of a capital asset is its full life cycle cost, including all direct and indirect costs for planning, procurement purchase price and all other costs incurred to bring it to a form and. Issue 1 life cycle costing is not yet considered to be a critical component of spp. A variety of factors associated with the methodology limit acceptance and practical application of the principles. However, lifecycle costing is useful when a company is planning to introduce a new product. It is an important tool for analysis and planning of the marketing mix activity. For guidance on implementing should cost management, see the better buying power website. Lcca lifecycle costs approach mis management information systems opex operating and minor maintenance expenditure wash water, sanitation, and hygiene. Mel barracliffe, lisa gardner, john hammond, and shawn duncan. Life cycle costing dermot kehily lecturer school of surveying and construction. Introduction the operations and support phase of the life cycle in a department of defense dod system begins with the initial system utilization and lasts until the final system ceases operations. The following bda provides additional guidance for the revisions to idm 4024. In this thesis the application of life cycle costing has been studied through case study. Sum of all recurring and onetime nonrecurring costs over the full life span or a specified period of a good, service, structure, or system.
Purpose life cycle costing lcc is an important economic analysis used in the selection of alternatives that impact both pending and future costs. Life cycle costing in road planning and management. Outlining why life cycle management business practices are so important to businesses. Lifecycle cost analysis lcca is a tool to determine the most costeffective option among different competing alternatives to purchase, own, operate, maintain and, finally, dispose of an object or process, when each is equally appropriate to be implemented on technical grounds. Lifecycle costing manual for the federal energy management program sieglinde k. Ownership costs historically have accounted for 60 to 70 percent of lifecycle costs for weapons.
Life cycle costing is a system that tracks and accumulates the actual costs and revenues attributable to cost object from its invention to its abandonment. Please refer to pmbok guide fourth edition, page 167, figure 71. The concept of asset management utilizes the life cycle cost analysis in managing the life of assets elakruti et al. Based on suppliers data, customer decides the life cycle, i. Why decisions on life cycle costing lcc are needed. Life cycle costs also see lcc are the total costs incurred throughout the service life of a pump system. Nist handbook 5 lifecycle costing manual for the federal. Pdf a life cycle cost calculation and management system. Department of commerce technology administration national institute of standards and technology. Designtocost is a management philosophy that emphasizes the selection and design of a system based on minimizing lifecycle cost. Target costing and lifecycle costing can be regarded as relatively modern advances in management accounting, so it is worth first looking at the approach taken by conventional costing. A report done by uc davis institute of transportation studies in 2010 has created a framework for the life cycle costs and environmental life cycle assessments for fully permeable pavements. For a given design, lcca estimates the total cost of the resulting building, from initial construction through operation and maintenance, for some portion of the life of the building generally referred to as the lcca study life.
Product life cycle and marketing management strategies. The most effective way to optimize the life of vehicles and equipment is through good fleet management. Issue 2 making a decision on the basis of lcc may make it more expensive upfront. Lifecycle cost analysis is a structured method of determining the entire cost of a structure, product, or component over its expected useful life by adding the cost of operating, maintaining, and using it to the purchase price. In this article, we introduce lifecycle costing and give examples of lifecycle costing in making project management decisions. Every project has a beginning, a middle period during which activities move the project toward completion, and an ending either successful or unsuccessful.
Life cycle costing lcc is defined in the international organization for standardization standard, buildings and constructed assets, servicelife planning, part 5. How to evaluate lifecycle costs in facility management. This comprehensive project life cycle model recognizes that there is always a project incubationfeasibility phase prior to the currently existing project starting phase of most project management pm standards, and also recognizes that there must be an additional postproject. The project life cycle phases the project manager and project team have one shared goal. There are four sets of costs typically involved in lcc calculations. The life cycle costs associated with the operation of a pump or pump system are determined by. They are used to compare the economic efficiency of various technical designs.
The lifecycle impact on each of these items is shown in exhibit 17. Objectives of life cycle costing life cycle costing analysis can be carried out during any phase of an assets life cycle. In particular, we investigated the level of costs that are designed in because that shapes the way a company manages costs across the product life cycle. Life cycle cost lcc is an important technique for evaluating the total cost of ownership between mutually exclusive alternatives. These costs include not only the direct costs of the acquisition program, but also include indirect costs that would be. As mentioned, conducting a life cycle cost analysis helps you estimate how much an asset will cost you over the course of its life. The harvard life cycle costing policy and calculator was designed to aid harvard decision makers in considering all present and future costs related to new construction, renovation, equipment replacement, or any other project that involves upfront and ongoing expenditures. Pdf life cycle cost lcc is an important technique for evaluating the total cost of ownership between mutually exclusive alternatives. Life cycle costing colorado department of transportation 1 1. Executive summary the research project was initiated by the colorado department of transportation cdot to develop guidelines for determining the longterm costs of adding additional capacity and other related transportation improvements to the state highway and bridge system.
The importance of facility management in the life cycling costing it is important to know the costs of facility management in all the phases of the life cycle of a building since it leads to relevant managerial. The general concept of a life cycle cost is not new. Life cycle cost analysis can be performed on large and small buildings or on isolated building systems. According to international standard iso 14040, lca is a. A lifecycle cost lcc is the total cost of a program from cradle to grave. Nist handbook 5 1995 edition life cycle costing manual for the federal energy management program sieglinde k. Existing methods of obsolescence management are inadequate to ensure cost effective continuity of support for the system.
Issue 3 a general appreciation for lcc is critical to change the procurement mindset from the best value for moneyto the best value across the asset life cycle. Evaluation of life cycle cost analysis methodologies. Life cycle costing takes into account all costs of an asset throughout its intended lifespan, resulting in a total cost of ownership calculation. The sixphase comprehensive project life cycle model.
Cost and benefit analysis of permeable pavements in water. A framework for facilities lifecycle cost management. In a clear, structured cost analysis you can easily see what cost sources influence your total cost of ownership the most when the major expenditure sources are clear, you can quickly identify hotspots for improvement in your baseline design and test different solutions for the. Ultimately, the railway companies address the question how life cycle costs of.
Life cycle cost the total cost of an item throughout its life, including the costs of planning, design, acquisition, operations, maintenance, and disposal, less any residual value, or the total cost of providing, owning. The economics of low impact stormwater management in practiceglencourt place pdf 15 pp, 442 k, about pdf exitthis paper compares the life cycle costs of a green infrastructure approach with those of a conventional approach to a retrofit of a residential subdivision. Keyword searches by topic and author are possible for both publication forms in. The application of cost management and lifecycle cost. The international infrastructure management manual defines lifecycle cost analysis as any technique which allows assessment of a given solution, or choice from among alternative solutions, on the basis of all relevant. Methodology and application of life cycle costing rero doc. That, very few firms appear to undertake life cycle costing studies at. Applied within the context of facility management, this concept acknowledges that the business buys into a chain of costs when buying a specific solution or product. If a significant portion of costs is designed in, we would expect to observe aggressive cost management predominantly in the design and not the manufacturing phase of the life cycle. Estimate costs determine budget control costs processes and related tools and techniques are usually selected when defining the project life cycle and are documented in cost management plan.
The ability of lcc methods to expand project management beyond a focus. It compares initial investment options and identifies the least cost alternatives for a twenty year period. Pdf the role of life cycle cost in engineering asset management. Executive order 123 requires government agencies to use life. The asset lifecycle model for total cost of ownership management figure 1 defines the cradle to grave responsibility for measuring and managing a physical assets useful life. A new approach is required to maximise the value of the military system throughout its life cycle. Trbs national cooperative highway research program nchrp synthesis 494. We use these methods for optimal costs management, observation, and the costs minimization. Kamps research institute for operations management at rwth aachen university fir, pontdriesch 1416, 52062 aachen. Using a life cycle planning process to support asset management november 2017 3 life cycle planning objectives a strong lcp process enables an agency to.
An asset management strategy facility professionals would do well to continue managing their buildings with an eye toward ensuring they are leveraging every aspect in a manner that contributes to the business. Explaining key concepts in plain language giving reallife examples of how businesses put these concepts into practice production conditions has been at a local level. Pdf lifecyclecostmanagement as an instrument for strategic. In lcc analysis of an equipment, life cycle means the life of the product that is installed in the plant, i. Building life cycle according the aia guide to building life cycle assessment in practice 2010. Examples of lifecycle costing lcc in project management. Life cycle costing involves tracing cost and revenues on a product by product base over several calendar periods. The operating profile op describes the periodic cycle through which the equipment will go, and indicates. However, over the life of the project, facility management cost is often two to three times higher than acquisition costs. Many building owners apply the principles of life cycle cost analysis in decisions they. The vice provost for land and buildings convened a team of staff from departments within land and buildings, along. Lifecycle cost analysis lcca is a method for assessing the total cost of facility ownership.
The idea that lifecycle costs can be controlled and minimized has wide appeal, but lifecycle cost analysis has not been consistently applied in the design and management of buildings. For example, for a highway pavement, in addition to the initial construction cost, lcca takes into account all the. Life cycle costing can also be applied in many different ways, level of detail and for different type of studies. The annual supplement to handbook 5, energy price indices and discount factors for lifecycle cost analysis, updated annually on april 1, provides the femp discount rates. Uc davis has been doing research on the costs and benefits of implementing permeable pavement in the sacramento area for a few years now. The framework provides a structure to help property owners, managers, overseers and others determine and manage the total cost of ownership. A life cycle cost calculation and management program for machine tools is presented here. Cost management plan a cost management plan is a document that describes how the organization will manage cost variances on the project based on estimation, but acted on through monitoring and controlling labor costs are a large percentage of total project cost time money. Life cycle costingtheory, information acquisition and. In the article we applied the concept of life cycle costing. In includes purchase price, installation cost, operating costs, maintenance and upgrade costs, and remaining residual or.
If the initial life cycle cost is huge but the time horizon is short, it is necessary. Life cycle cost analysis lcca is an economic evaluation technique that determines the total cost of owning and operating a facility over period of time. What does life cycle costing in construction really mean. An effective tool for total asset management blanchard, b. Lifecycle cost analysis the pennsylvania experience. Through lcc one seeks to minimize the cost of obtaining a cer tain level of output. Effective lifecycle cost management can be achieved only if these actions are in fact taken, and failure to do so may raise the costs of ownership well above the levels anticipated in the analysis. Specifically, of the many costmanagement methods that may be used to calculate homeland security costs, 17 lcc is promising in its ability to model the costs that states, tribal entities, and urban areas incur to achieve a particular level of capability and then sustain it. Systems development life cycle sdlc methodology information technology services july 7, 2009 version 1 authors. The product supplier provides the life cycle depending on design calculation and experience. A sample spreadsheet is included to illustrate how life cycle cost analysis lcca might be used to evaluate different aspects of a project. Lifecycle costing lcc lcc acquisition maintenance endoflife 4 0 preacquisition costs selling price postacquisition costs environmental externalities recipe method external costs direct costs indirect costs lifecycle costing is a methodology where costs of a given asset are considered throughout its lifecycle 201424eu art.
Life cycle costing is currently a valuable tool in the construction industry. Ram refers to three related characteristics of a system and its operational support. Capital and ongoing operating and maintenance costs must be considered wherever asset management, risk management, value management and demand management decisions involving costs are made. Lifecycle costing make you consider the entire ownership costs of a project before making a decision. Best practices for managing asset life cycle cost author. Life cycle cost analysis for management of highway assets documents the state of the practice of life cycle cost analysis lcca and riskbased analysis into state highway agencies asset management plans for pavements and bridges on the national highway system.