Life Cycle Cost (LCC) analysis is a means of quantifying the choice of materials for a product or construction, with the aim of selection of the most economic alternative.

Traditionally the selection of a material for a given application has been on the basis of the cheapest purchase price. It is now recognised that the cheapest purchase price may not be the most economic choice if account is taken of the very real additional costs due to installation, regular maintenance and for periodic replacement should the material's life be less than that required for the product or construction. In the case of equipment installed in factories or processing plants a further cost which must be included for each possible alternative material is that caused by lost time - the time for which production is lost because of unscheduled down-time of the equipment. In many industries this lost time cost far outweighs all other costs, and must certainly be included in estimates of life cycle cost.
Life Cycle Cost Components

In general terms the total LCC can be broken down into components:

LCC=


Acquisition Cost


+


Fabrication and Installation

Cost


+


Maintenance Costs (periodic)


+


Replacement Costs (periodic)


+


Cost of Lost Production (periodic)


-


Residual (Scrap) Value

Each of these terms must be known if a realistic result is to be calculated.
Evaluation of Life Cycle Cost

The calculation of LCC relies upon the concept of the "time value of money" - the notion that a dollar spent next year costs less than a dollar spent today, because the money could in the interim be invested and hence be generating income of its own. Future expenditures can therefore be discounted by a factor which depends upon several inputs, including the cost of funds to the organisation, the prevailing inflation rate and the time period for which the expenditure is delayed. Calculation by manual methods is quite complex, so in the past this valuable tool has been left to the accounting specialists. With the wide availability of PC spreadsheets the calculation of LCC has become much easier, but a further step towards ease of use has been made with the implementation of a personal computer program specifically for this task.
LCC Calculation by Computer Program

A PC program has been produced by the International Chromium Development Association and is available in Australia from the Australian Stainless Steel Development Association (ASSDA). Copies can also be obtained free of charge from stainless steel suppliers. The program is designed to run on any IBM-compatible PC.

The LCC computer program has been written to ensure ease of use; all inputs are keyed into appropriate simple screens, and the resulting changes are reflected immediately in the calculated LCC, giving comparative costs for up to three alternative materials.