Whole-life cost

Life Cycle Costing (LCC ) and life cycle costing is a cost management method that considers the development of a product from the product idea to withdrawal from the market ( product life cycle), ie from the " cradle to grave ". In this case, only the negative cash flows (expenditures) of interest, the revenue ( revenue ) can be neglected.

Historical Development

The concept of life cycle costing has already been applied in the 1960s in the construction and military sectors for large investments. First approaches but there were also already in the 1930s for agricultural machinery.

Differentiation criteria for life cycle oriented considerations

Life cycle considerations are based on a distinction of material and temporal criteria. The objective criteria consider the reference object and the reference subject. The temporal criteria include the phase structure and the frequency of the observations. The reference object can be a product, system, industry, process, customer, supplier, technology, network, company, country, etc.. The reference subject can be ( and from whose point of view operators and manufacturers ), Producer, R & D, marketing, society, etc. the customer. The customer and producer point of view is explained in the next section in more detail. The time distinguishing features of life cycle considerations in relation to the phase structure, the number of phases, phase range, phase depth and calendrical features. In terms of the frequency lifecycle considerations distinguish whether they are one or more times through out.

Perspectives

Life Cycle Costing can be viewed from two different perspectives, from the perspective of the producer or the customer.

On the supply side, both the total own costs and the costs incurred by the customer, determined. Even before production, that in product development, the manufacturer should consider different options of a product into consideration and choose the best. Interesting for company is also the customer, which is often neglected, despite increasing customer orientation perspective. Customers are not interested in development or production costs, but only the costs of the acquisition to disposal. Targeted information provided to the customer, the economic and ecological benefit of the product to be communicated. One way to reduce the operating costs of customers eg a guarantee. It reduces the possible repair costs. To reduce the disposal costs contribute redemption warranties or recycling opportunities. However, this reduction in costs resulting from customers increases again the follow-up costs of the producer. A trade-off between the various options is required, which is based on eg a conjoint analysis could be based.

• Customer Perspective procurement
• Training and use
• Support by the manufacturer
• Maintenance
• Disposal

• Producer perspective Product development and formulation
• Design
• Process Development
• Production
• Logistics

Procedure

Often select at a purchase between several options. The Life Cycle Costing considered in selecting not only the cost but also the cost of use (eg operating personnel costs, maintenance costs, energy consumption and costs, ...) and the disposal of a product. In contrast to the net present value method, the related payments are not discounted to the date of acquisition (net present value ), but the actual payments compared accrual basis. Only by the NPV method a holistic view of the product and a choice of the best for the enterprise value option are possible.

Option 1 appears quite low at first glance, the acquisition cost is low. Buys of the consumer of this product, so he sees himself but faced with high operating and disposal costs. Option 2, however, makes the high acquisition costs a rather expensive impression. Due to the low follow-up costs but results in a balance, the so-called trade-off. This trade -off can only be known through the life cycle-related consideration. The traditional cost accounting period due to their relatedness to not be able. The net present value method takes into account not only the life-cycle costs, but also their time of onset properly and, by discounting the impact on the company's value as a basis for decision making. In terms of enterprise value maximization is superior to other methods.

Models

In order to consider a product from the viewpoints of Life Cycle Costing and can rate, there are numerous manners:

• German Industrial Standard of the German Institute for Standardization: DIN EN 60300-3-3:2004 " Application Guide lifecycle costs "
• Directive of the Association of German Engineers VDI 2884:2005 " procurement, operation and maintenance of production equipment using Life Cycle Costing (LCC ) "
• Directive of the Association of German Engineers VDI 2067:2012 " Economic efficiency of building installations - Fundamentals and economic calculation "
• Directive of the German Machinery and Plant: VDMA 34160:2006 " forecasting model for the life cycle costs of machinery and equipment "

An Overview of models for calculating the LCC and TCO can be found under the heading Total Cost of Ownership models.

Application

Especially in the ecology -oriented business administration, this method proves very popular due to its holistic approach. Through the inclusion of operating and disposal costs, the principle of sustainability applies. However, the LCC approach is reflected in the real estate economics to bear.

Most companies that use life cycle costing, are high-volume product manufacturers such as Automotive, electrical and electronics industry ( 1996: 67 percent 2001: 71 percent). The use of Life Cycle Costing degree of 28 percent is very low compared to other cost management concepts. About half of the companies that do not use Life Cycle Costing, founded the Life Cycle Costing concept to be inappropriate and about a quarter of the surveyed non- life-cycle -costing companies as too expensive.

In Germany, Life Cycle Costing is used by the Bundeswehr in the context of procurements as part of the Customer, Product Management ( CPM [ nov. ] ).

Assessment

The comprehensive cost optimization results in high costs and potential savings of resources. The problem is the prediction of the operating and disposal costs, since they are based only on estimates and past experience.

Although a rule of thumb states that "(...) a monetary unit cost increase in product planning, product development and design saves eight to ten monetary units of production and distribution costs," the companies surveyed planned to only 6 percent ( 1996) and 7 percent ( 2001) an insert the life -cycle costing.