Calculating Life Cycle Costs For Your Assets and Make Purchasing Decisions Based On It

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One of the most challenging parts of life cycle cost analysis is to make sure all costs generated by your acquisition are included. Life cycle costs take design, engineering, construction, acquisition, installation, operation, maintenance and end-of-life factors into consideration, but not all these costs apply to all purchases. Your vehicle fleet costs consist mainly of acquisition, operating and maintenance costs with an end-of-life credit when you return a vehicle. Computers may have an end-of-life cost for secure deletion of data and environmentally-friendly disposal. For your initial project, choose an asset for which you can access accurate costs from past records or industry standards to make sure your initiative is firmly-based and reliable.

You can use life cycle cost analysis to help choose an initial supplier and to select providers for support services. Your choice of supplier based on low life cycle costs can reduce your overall costs, while life cycle cost management ensures that you achieve the cost savings your analysis projected for services and expenses during use of the asset. A good idea for your initial project is to limit the analysis to the acquisition phase, since carrying it out for an entire life cycle would take too long. 

A further application of life cycle cost analysis and management is as a basis for investment decisions. In addition to helping with the choice of suppliers, your analysis can determine whether you should buy the asset in the first place. Use data from your project to compare projected life cycle costs to the benefits your company expects from the purchase of the new asset and to the costs of continuing without making the purchase. If your project provides new information and leads to decisions that save your company money in the long term, you can implement life cycle cost management for all major acquisitions.

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