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Life cycle costing
(LCC) is a way of analyzing equipment purchase choices. If the
analysis is done right and all factors are addressed, and the
information is good, you would select the item that cost the least
amount to own (buy and use) over its working life. This piece
of equipment when compared to other suitable items would perform
its lifetime service at least total cost to the organization.
When buying equipment
you want to know three things - purchase cost, running cost and
maintenance cost. The total of these over the equipment's life
is its LCC. A low LCC means the least amount of money necessary
was spent on it, while a high LCC means extra money was spent
and that money was then not available for other things. From a
purely financial viewpoint it is sensible to go for equipment
with the lowest LCC possible. But it is not only the cost of a
thing that needs to be considered when purchasing it.
As a simple example
of the process we will choose a lawn mower. The options are a
reel mower or a rotary mower. Start by developing a simple table
like the one below listing the frequency and costs of the activities
expected to occur through out its working life. The costs and
frequency are the standard ones from the manufacturers and the
parts and service people. Do not make them up. Take the recommendations
of the manufacturers and service specialist so that the comparisons
are based on fact and the opinion of knowledgeable persons.
|
Reel
Mower
|
10
Year Cost |
Rotary
Mower |
10
Year Cost |
| Purchase
Price |
1
off |
$900 |
1
off |
$700 |
| Fuel
for 10 Years |
120lt. |
$120 |
120lt. |
$120 |
| Service
Every |
5
year |
$240 |
3
year |
$240 |
| Replace
Blades Every |
3
year |
$600 |
1
Year |
$500 |
| Total
Cost for 10 Years |
|
$1860 |
|
$1560 |
The rotary mower has
the best LCC being the cheapest to own. Does that mean people
will not buy a reel mower? Off course not. People buy reel mowers
because they leave a better cut on a lawn and are self-propelled.
It is not always the cost that determines the selection, at times
the functionality of the equipment is important.
Putting a value on
functionality is difficult when compared to putting a value on
a piece of machinery. Functionality is measured in job time savings,
accidents not incurred, overtime not worked, people not having
to be employed, etc. LCC falls short in that aspect of justifying
equipment.
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