The acquisition cost of an asset is just a portion of the total cost of owning it. Ongoing maintenance significantly adds to that cost; and for a long-lived asset, that cost can be much greater than the initial design, construction, and installation cost. Moreover, failure to keep up with regular asset maintenance can result in premature deterioration and an increased risk of failure, leading to even greater maintenance and rehabilitation costs.
A tool that helps solve this challenge is life cycle costing. Life cycle cost analysis considers the entire cost of owning the asset over its useful life. One of the primary benefits of life cycle costing for capital assets is that during initial asset acquisition, the analysis shows which asset is the most cost effective over the long term, not just which is the cheapest to acquire. In addition, after the asset has been acquired, life cycle cost analysis can be used to budget and plan for the most cost-effective maintenance strategies.
- Publication date: March 2020
- Author: Shayne Kavanagh