The Procurement Glossary » Life-Cycle Costing
Life-Cycle Costing
Sourcing & RFx
Definition
A costing method that sums all costs of an asset across its whole life, from acquisition through operation to disposal.
Explanation
Life-cycle costing is the analytical basis of TCO for capital assets. It discounts future operating, maintenance and disposal costs to compare options fairly, and is central to sustainable and capital-equipment buying.
Example
Life-cycle costing favours the more efficient chiller: higher purchase price, far lower ten-year energy and service cost.
Related terms
- Total Cost of Ownership (TCO) — The full lifetime cost of a purchase — not just the price, but delivery, installation, operation, maintenance, downtime and disposal.
- Capital Expenditure (CapEx) — Spending on long-lived assets such as equipment, buildings or vehicles, capitalised and depreciated over time.
- Should-Cost Analysis — A bottom-up estimate of what a product or service ought to cost, built from its materials, labour, overhead and reasonable margin.
Frequently Asked Questions
What is Life-Cycle Costing?
A costing method that sums all costs of an asset across its whole life, from acquisition through operation to disposal. Life-cycle costing is the analytical basis of TCO for capital assets. It discounts future operating, maintenance and disposal costs to compare options fairly, and is central to sustainable and capital-equipment buying.
Can you give an example of Life-Cycle Costing?
Life-cycle costing favours the more efficient chiller: higher purchase price, far lower ten-year energy and service cost.
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