Are you curious about how the actual cost of owning and maintaining assets over their lifetime is calculated? You've likely heard the terms Life Cycle Costing (LCC) and Total Cost of Ownership (TCO). These two methodologies have become buzzwords in facilities management and facility capital planning, and for good reason. 

Facility Capital Planning Financial Analysis Guide: Demystifying Life Cycle Costing and Total Cost of Ownership

By examining the various costs associated with asset ownership and utilization, LCC and TCO can help organizations make more informed decisions about their investments. In this blog, we will explore these concepts further and how they can be applied to optimize asset management strategies.

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Life Cycle Costing (LCC) and Total Cost of Ownership (TCO) are buzzing financial terms in facilities management and capital planning. They are also commonly referred to as whole-life costing, cradle-to-grave costing, or womb-to-tomb costing.

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Total Cost of Ownership and Life Cycle Costing are closely related analysis methodologies meant to reveal various functional lifetime costs resulting from the ownership and utilization of certain types of assets. In addition to purchase costs, the Total Cost of Ownership incorporates substantial costs for deploying, operating, upgrading, and maintaining physical assets.

Total Cost of Ownership

Total Cost of Ownership refers to the sum of all costs incurred throughout the lifetime of owning or using an asset; they typically exceed the original purchase price. TCO enables decision-makers to consider asset procurement more strategically (beyond the lowest bidder) and level the playing field when choosing among competitive bids, where the lowest-priced bid may or may not be the least costly asset to procure.

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Life Cycle Costing

Life Cycle Costing is a technique to establish the total cost of ownership. It is a structured approach that can assist management in the selection process. It can consider any expenses that the selection team feels are appropriate. Maintenance, asset disposal, training, cost of upgrades, energy consumption, resources used in manufacture, and cost of duplicate service during installation are all expenses that could be included in an LCC analysis.

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In short, TCO and LSS are methodologies for calculating the whole cost of a system from inception to disposal. This includes the financial cost, which is relatively simple to calculate, as well as the environmental and social costs, which tend to be more challenging to quantify. Typical expenditures in calculating the LCC include planning, design, construction and acquisition, operations, maintenance, renewal and rehabilitation, depreciation and finance, and replacement or disposal costs.

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Are you looking to optimize your physical asset management strategies and make informed decisions about long-term investments? Look no further than our blog on Demystifying Life Cycle Costing and Total Cost of Ownership.

This post delves deeper into these concepts and explores how they can be applied to facilities management and capital planning. Our expert analysis offers valuable insights into the various costs associated with asset ownership and utilization, including planning, design, construction, operations, maintenance, renewal, rehabilitation, depreciation, finance, and replacement or disposal costs.

Learn how to calculate the whole cost of a system from inception to disposal and how Intellis software can improve your facilities management and facility capital planning. Read on to optimize your asset management strategies and make more informed decisions today!