Life Cycle Costing

Dr. Himanshu Jain

PIET
 Life Cycle Costing

Life cycle costing, LCC, is the process of economic analysis to assess the total cost
throughout its life including planning, design, acquisition & support costs & any other
costs directly attributable to owning / using the asset.

The costs are included in different stages of the product life cycle.
• Development phase -R&D cost/Design cost.
• Introduction phase – Promotional cost/Capacity costs.
• Growth phase/Maturity – Manufacturing cost/Distribution costs/Product support
cost.
• Decline/Replacement phase – Plants reused/sold/scrapped/related costs.
 Objectives of Life Cycle Costing

• Assists management to smartly manage total cost throughout product’s life cycle.
• To identify areas in which cost reduction efforts are likely to more effective.

• To estimate the cost impact of various designs and support options.

 Benefits of Life Cycle Costing

The following are the benefits of product life cycle costing:

(i) It results in earlier actions to generate revenue or to lower costs than otherwise
might be considered.
(ii) It ensures better decision from a more accurate and realistic assessment of
revenues and costs, at-least within a particular life cycle stage.
(iii) It promotes long-term rewarding.
(iv) It provides an overall framework for considering total incremental costs over the
life span of the product.