Life cycle costing is an analysis of the total cost of a system, device, building, machine, etc., over its anticipated useful life. The name is new but the subject has, in the past, gone by such names as "engineering economic analysis" or "total owning and operating cost summaries."
Life cycle costing has brought about a new emphasis on the comprehensive identification of all costs associated with a system. The most commonly included costs are initial in place cost, operating costs, maintenance costs, and interest on the investment. Two factors enter into appraising the life of the system; namely, the expected physical life and the period of obsolescence. The lesser factor is governing time period. The effect of interest can then be calculated by using one of several formulas which take into account the time value of money.
When comparing alternative solutions to a particular problem, the system showing the lowest life cycle cost will usually be the first choice (performance requirements are assessed as equal in value).
Life cycle costing is a tool in value engineering. Other items, such as installation time, pollution effects, aesthetic considerations, delivery time, and owner preferences will temper the rule of always choosing the system with the lowst life cycle cost. Good overall judgement is still required.
The life cycle cost analysis still contains judgement factors pertaining to interest rates, useful life, and inflation rates. Even with the judgement element, life cycle costing is the most important tool in value engineering, since the results are quantified in terms of dollars.
As the price for energy changes, and as governmental incentives are initiated, processes or alternatives which were not economically feasible will be considered.
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.