What is life cycle costing (LCC) and why is it important?

The concept and areas you need to be aware of

When evaluating tenders for technical products, for example, one should focus on the life cycle cost of the various proposals, or LCC as it is often called. Or LCC (Life Cycle Cost) as it is often called. In this article, we will quickly go through the concept and the areas that usually need to be included in such a simple analysis.

The life cycle costs (LCC) of individual solutions should always be carefully examined before major investment decisions. Some industries like to talk about Total Cost of Ownership (TOC), which is a similar concept but where LCC is more internationally dominant for industrial solutions.

Why LCC?

Through a basic LCC analysis, we can calculate, understand and evaluate our options around an individual purchasing decision.

Professional procurement always looks at the total lifecycle cost, sometimes not "seeing the forest for the trees" but focusing on the closest tree, which in many cases can be the purchase price or a discount offered. 

If we are buying a new machine for a factory or an office, we obviously need to know the purchase price, but it can be even more important to know the cost of actually using the machine. What are the ongoing operating and maintenance costs behind the initial investment? Often, for example, the energy costs of running a piece of equipment can be significantly higher than the purchase itself.

The same reasoning applies, of course, if we buy a product privately and for our own use. For example, no one would want a car with ongoing service costs that are twice as high as

A basic LCC analysis is therefore of utmost importance in a procurement process. Experience shows that the cost of the actual purchase is only a small part of the total cost that is undertaken, sometimes as little as 10%. Operation and maintenance usually represents the absolute lion's share of the actual cost picture.

Regardless of the industry, an LCC analysis is based on the investment cost of the equipment, i.e. the purchase price, but just as importantly:

  • Operating costs, which often boil down to energy costs, over the lifetime of the equipment. It can also be crucial if a lot of staff is required to manage or monitor the operation.
  • The maintenance costs of the equipment, including ongoing service and consumables required, but also, for example, any downtime costs.
  • In addition, there may be other slightly hidden costs to be taken into account, such as the financing of the purchase. 

An LCC analysis - or a TCO analysis if you prefer that term - can also be used to evaluate existing technologies and how quickly a new investment in alternative solutions would be profitable. If the differences in energy and maintenance costs are large, the payback period for replacing existing equipment can be as short as a few months.

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LightAir has helped many industries and offices with the highest possible purification capacity, high scalability and minimal noise levels. And we have yet to encounter a competitor that comes close to the low life cycle cost (LCC) we can offer. Read more about our Professional Solutions here! Or contact us directly for a dialog.

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