#220317TM5.Life Cycle Costing & HS Code Material Kursi& Manfaatnya

Chapter 15

Life Cycle Costing

Chapter Aim : The aim of this chapter is describe the technique of life cycle costing and to illustrate it with an example. We also consider the concept of economic life which provides a theoretical basis for deciding how long a life cycle should be considered.

Chapter Outcomes : After reading this chapter you will understand the reason for life cycle costing and have seen a check list of factors that go into a life cycle costing analysis. You will have seen an example of a life cycle cost analysis. You will have been intoruduced to the concept of economic life and will have seen an example of an economic life calculation.

Chapter Topics :

• ·         Aim of life cycle costing
• ·         Life cycle asset management plan
• ·         Input to project budget
• ·         Life cycle costing elements
• ·         Life cycle costing example
• ·         Economic life concept
• ·         Economic life example

1.5 Aim of Life Cycle Costing

Australian Standart AS4536 Life Cycle Costing is a useful reference on this topic. Life Cycle Costing ( LCC ) is the analysis of the cost of acquiring, introducing, operating, maintaining, and disposing of equipment. It is “ cradle to grave “ cost analysis. The aim of life cycle costing is to avoid doing something stupid, such as neglecting or badly estimating a major cost area. Because it relates to a wide range of items and activities over a long period of time, life cycle costing is not generally as accurate as formal acquisition cost, with less attention paid to such issues as operating cost, consumables, life of the item, spares costs, life of key components, diversity of spares and tools and issues related to training.

Figure 15.1 illustrates the stages in the life cycle of an equipment, showingschematically the cumulative cost and opportunity to influence costs. The opportunity to influence costs is concentrated at the planning and acquisition stages. It is important in selecting equipment that we take do account of logistic support considerations, otherwise equipment support costs, performance, and availability may produce poor results that negate  perceived advantages in initial cost.

An illustrartion of the application of ligfe cycle costing relates to a company which bulds prisons. In some cases it will be competing for a contract to design and bulid a prison and then hand it over to another organization to run it. In other cases, the contract will be to design, bulid and operate the prison. In the first case, the company will create a design which is inexpensive to bulid, but pays little attention to the operational aspect. If it did otherwise I would almost certainly not win the contract because its tender price would be too high. In the second case the design would take account of the fact that the company would itself be operating the prison, and they would therefore aim to minimize costs over the whole life cycleof the contract.

Life cycle costing is applied initially at a broad brush level to assist with capability development analysis, and later at a more refined level in the course of making a  firm acquisition decision. It is intended to ensure that all relevant costs are identified, and that through life costs are considered at the planning, acquisition and budgeting stages.