What is LCC Life Cycle Costing?
A life-cycle cost analysis (also called whole-life cost) gives the present value of the total cost of your investment.
The life-cycle cost is calculated using the formula:
LCC = Capital Cost + Present worth of Maintenance and Energy Cost - Present worth of Salvage value
The capital cost of a project includes the initial capital expense for equipment, the system design, engineering, and installation. This cost is always considered as a single payment occurring in the initial year of the project, regardless of how the project is financed.
Maintenance is the sum of all yearly operation and maintenance costs. Fuel or equipment replacement costs are not included. Costs include such items as an operator's salary, inspections, insurance, property tax, and all scheduled maintenance.
The energy cost of a system is the sum of the yearly fuel cost.
The salvage value (S) of a system is its net worth in the final year of the life-cycle period. It is common practice to assign a salvage value of 20 percent of original cost for mechanical equipment that can be moved.
Oskar Olofsson, 2009
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