Life Cycle Costing
Life cycle costing considers the total cost of ownership over the entire life cycle of a product, from acquisition through operation, maintenance, and disposal.
Explanation
Life cycle costing goes beyond the project budget to consider the total cost of owning, operating, maintaining, and disposing of a product or system over its entire useful life. This approach helps organizations make better decisions by evaluating the full financial impact rather than just the initial acquisition cost.
For example, a cheaper piece of equipment may cost more over its life cycle due to higher maintenance and energy costs. Life cycle costing enables comparison of alternatives on a total-cost basis. It includes development costs (design, build, test), operating costs (energy, supplies, labor), maintenance costs (repairs, upgrades, spare parts), and disposal costs (decommissioning, recycling, environmental remediation).
In project management, life cycle costing is used during the Estimate Costs process and is particularly important for projects that produce products with long operational lives. It supports value engineering and helps justify investments in higher-quality materials or designs that reduce long-term costs.
Key Points
- •Considers total cost from acquisition through disposal
- •Includes development, operating, maintenance, and disposal costs
- •Enables comparison of alternatives on total-cost-of-ownership basis
- •Supports value engineering and quality investment decisions
Exam Tip
Life cycle costing looks beyond the project to the total cost of ownership. The exam may test scenarios where a lower upfront cost leads to higher life cycle cost, and vice versa.
Frequently Asked Questions
Related Topics
Estimate Costs
Estimate Costs is the process of developing an approximate monetary assessment of the resources needed to complete project activities.
Cost of Quality (COQ)
Cost of Quality (COQ) is the total cost incurred over the life of a product by investing in preventing nonconformance, appraising deliverables for conformance, and dealing with failure when requirements are not met.
Determine Budget
Determine Budget is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.
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Part of
Cost Management
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