Buying a car with the lowest purchase price is often not the best
financial decision. There are many post-purchase costs that should
be considered, including:
- Running Costs (e.g. fuel, oil, tyres etc.)
- Support Costs (e.g. servicing, repairs, spares etc.)
- Replacement Costs (e.g. depreciation, disposal etc.)
Even when purchasing a car, it may be important to consider Modification
Costs covering, in effect, the subsequent implementation of new
requirements; these could include the fitting of a tow-bar or air-conditioning.
Life Cycle Costing (LCC) is the discipline for analysing all the
costs of ownership so that the lowest total cost can be achieved.
A fundamental objective of most major system procurements is usually
that total costs over the complete life-cycle should be as low as
possible - given that the system requirements (including performance)
The procurement of major systems differs from the private purchase
of a car in many key ways; typically the acquisition and in-service
costs are derived from different budgets. Sometimes they are considered
to be parts of the separate Capital and Revenue cost budgets respectively.
There is a growing recognition that increased acquisition costs
can lead to lower overall life-cycle costs, and therefore emphasis
is now placed on LCC assessment rather than simply selecting the
system with the lowest purchase cost.
The quantification of life-cycle costs can be achieved through
the development of cost models that may be based on bespoke or commercial
LCC tools. The models cover the level of detail necessary to understand
and control costs, including cost discounting and sensitivity to
interest rates and other costs (e.g. manpower costs).