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Life cycle costing: an alternative selection tool

Nikhil Shil () and Mahbub Parvez ()

MPRA Paper from University Library of Munich, Germany

Abstract: In today’s complex business environment, both raising and application of fund becomes so costly. Thus, business needs to take a wise decision of investing funds in fixed facilities, which at one side consumes a lot of costly fund and on the other, set the value of the business. Net present value (NPV), pay back period (PBP), internal rate of return (IRR) are some widely used and customary tools in such situation most of which are based on projected revenues. In this paper, we have tried to use life cycle costing as a strong alternative, which considers every cost category throughout the life of the assets, from cradle to grave, to represent the effective use of funds in its totality. The theoretical foundation of LCC as a tool comes from literature review but the application of LCC in alternative choosing areas are the development of the authors. The use of mathematical tools and equations is an exemplary one that may be changed or modified to fit it with the typical context, if necessary. The paper can be a guideline which finally concludes that the use of life cycle costing as an alternative selection tool results a better cost structure analysis than others.

Keywords: Cost Breakdown Structure (CBS); Invisible Costs; Iceberg Effect; Affinity Diagram (search for similar items in EconPapers)
JEL-codes: M4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-ppm
Date: 2007-06-30, Revised 2007-02-18
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Published in Journal of Business Research June 2007.Vol. 9(2007): pp. 49-68

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