What is Life Cycle Cost (LCC) and why is it important?
The concept and sub-areas to check
When evaluating offers for technical products, for example, you should focus on the life cycle cost of the various proposals – or LCC (Life Cycle Cost), as it is often called. In this article, we’ll run through this concept and some of the sub-areas that usually must be included in a simple analysis
The life cycle costs (LCC) of a solution should always be carefully examined before major investment decisions. Some business sectors talk about Total Cost of Ownership (TCO), a similar concept, but LCC is more dominant internationally for industrial solutions.
Through a basic LCC analysis, you can calculate, understand and evaluate your options around an individual purchasing decision.
A professional procurement always has an eye on the total life cycle cost. Sometimes “you can’t see the forest for all the trees” and instead focus on the closest tree, which in many cases is the purchase price or the size of a discount offered.
If you buy a new machine for a factory or office, you need to know the purchase price, but it can be more important to know what it costs you to actually use the machine – what ongoing operating and maintenance costs are hidden behind the initial investment? For example, the energy costs to operate a piece of equipment can often be significantly higher than the purchase itself.
Of course, the same reasoning applies if we buy a product for our own use. For example, no one would want a car with ongoing service costs that amount to twice the purchase price.
Simple and fundamental cost analysis
Fundamental LCC analysis is therefore of utmost importance in a procurement process. Experience shows that the purchase cost is only a small part of the total cost you undertake, sometimes as little as 10%. Operation and maintenance usually make up the 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 at least as important are:
- Operating costs, which often boil down to energy costs over the life of the equipment. It can also be decisive if many people are required to manage or supervise the operation.
- Maintenance costs for the equipment, including ongoing service and consumables required, but also any downtime costs for planned maintenance or unplanned repairs.
- In addition, there may be other slightly hidden costs to consider, for example, financial costs, depreciation or tax effects.
An LCC or a TCO analysis can also be used to evaluate your existing technology and how quickly a new investment in an alternative solution would be profitable. If the differences in energy and maintenance costs are high, for example, the payback period for replacing an existing piece of equipment might only be 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 come across any competitor 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.