Life cycle costing
Life-Cycle-Costing (LCC) or life -cycle costing is a cost management method that considers the development of a product from the product idea to its withdrawal from the market ( product life cycle ), ie "from the cradle to the grave". Only the negative cash flows (expenses) are of interest, the revenues (receipts) are neglected.
The concept of life cycle costing was already used in the construction and military sectors for large investments in the 1960s. In the USA, the concept was used by the United States Department of Defense as a decision-making aid for the procurement of weapon systems. The background to this was that the United States Department of Defense had carried out an expenditure analysis due to reduced budgets. This had shown that a significant part of the expenditure was not incurred for purchases, but for the maintenance and operation of the systems previously acquired. This made it clear that when the order is placed for the systems, not only their acquisition costs, but also the expected follow-up expenses from the entire life cycle of the systems are relevant and must therefore be taken into account in the decision-making process. Later, the concept of life cycle costing was also used in the USA to assess the profitability and design of complex large-scale industrial plant construction projects. However, the first approaches for agricultural machines were also made in the 1930s.
Differentiation criteria for life cycle-oriented considerations
Life cycle considerations are differentiated on the basis of factual and temporal criteria. The objective criteria consider the reference object and reference subject. The time criteria include the phase structure and the frequency of the observations. The reference object can be a product, system, industry, process, customer, supplier, technology, network, company, country, etc. The reference subject can be the customer (and from his point of view the operator and manufacturer), producer, R&D, marketing, society, etc. The customer and producer perspective is explained in more detail in the next paragraph. The temporal distinguishing features of life cycle considerations with regard to the phase structure are the number of phases, phase range, phase depth and calendar features. With regard to the frequency, life cycle considerations differentiate whether they are carried out once or several times.
Life cycle costing can be viewed from two different perspectives, from the perspective of the producer or the customer .
From the producer's point of view, both the total own costs and the costs incurred by the customer are determined. Even before production, i.e. during product development , the producer should consider various options for a product and choose the cheapest one. Also of interest to companies is the customer perspective, which is often neglected despite increasing customer orientation . The customer is not interested in the development or production costs, but only in their own costs from purchase to disposal. Targeted information can communicate the economic and ecological advantages of the product to the customer. One way to reduce customer operating costs is e.g. B. a guarantee. It reduces the repair costs that may arise. Take-back guarantees or recycling options help to reduce disposal costs. This lowering of the follow-up costs for the customer increases the follow-up costs for the producer. It is necessary to weigh up the individual options. B. a conjoint analysis could be based.
- Customer perspective
- Training and use
- Support from the manufacturer
- Producer perspective
- Product development and design
- Process development
There are often several options to choose from when making a purchase. When making a selection, life cycle costing not only considers the acquisition costs, but also the costs of use (e.g. operating personnel costs, maintenance costs, energy and consumption costs, ...) and disposal of a product. In contrast to the net present value method , the payments incurred are not discounted to the date of purchase ( present value ), but the actual payments are compared in the appropriate period. A holistic view of the product and a choice of the most favorable option for the company value is only possible with the capital value method.
Option 1 looks quite cheap at first glance, the acquisition costs are low. If the consumer buys this product, however, he is confronted with high operating and disposal costs. Option 2, on the other hand, makes a rather expensive impression due to the high acquisition costs. Due to the low follow-up costs, there is a compensation, the so-called trade-off. This trade-off can only be recognized by looking at the life cycle. Traditional cost accounting is not able to do this due to its period-based nature. The net present value method not only takes into account the life cycle costs, but also their timing correctly and, through discounting, provides the effects on the company value as a decision-making criterion. In terms of maximizing company value, it is superior to the other methods.
There are numerous procedures to be able to consider and evaluate a product from the point of view of life cycle costing:
- German industrial standard of the German Institute for Standardization: DIN EN 60300-3-3: 2004 "Application guide for life cycle costs"
- Guideline of the Association of German Engineers: VDI 2884: 2005 "Procurement, operation and maintenance of production equipment using Life Cycle Costing (LCC)"
- Guideline of the Association of German Engineers: VDI 2067: 2012 "Economic efficiency of technical building systems - Basics and cost calculation"
- Guideline of the Verband Deutscher Maschinen- und Anlagenbau: VDMA 34160: 2006 "Forecast model for the life cycle costs of machines and systems"
A model overview for determining the LCC and TCO can be found under the heading Total Cost of Ownership Models.
This method is particularly popular in ecology-oriented business administration due to its holistic approach. The principle of sustainability is applied by including the operating and disposal costs . However, the LCC approach is also used in the real estate economy.
Most of the companies that use life cycle costing are high volume product manufacturers such as B. automotive, electrical engineering and electronics industries (1996: 67 percent, 2001: 71 percent). The use of Life Cycle Costing of 28 percent is very low compared to other cost management concepts. More than half of the companies that do not use life cycle costing justified the life cycle costing concept as unsuitable and over a quarter of the non-life cycle costing companies surveyed as too expensive.
The comprehensive cost optimization results in high savings potential in terms of costs and resources. The forecast of the operating and disposal costs is problematic, since these are only based on estimates and empirical values.
Although a rule of thumb states that "(...) one monetary unit of cost increases in product planning, product development and construction saves eight to ten monetary units in production and sales costs", only 6 percent (1996) and 7 percent (2001) of the companies surveyed planned to use them of life cycle costing.
- Bode, Maximilian / Bünting, Frank / Geißdörfer, Klaus: Arithmetic book of life cycle costs , Frankfurt 2011, ISBN 9783816306177
- Norris, GA (2001): Integrating Life Cycle Cost Analysis and LCA , in: The International Journal of Life Cycle Assessment , Vol. 6, H. 2, pp. 118-120, doi : 10.1007 / BF02977849 .
- Schaltegger, S. & Burritt, R. (2000): Contemporary Environmental Accounting. Issues, Concepts and Practice . Sheffield: Greenleaf Publ.
- Schild, U. (2005): Life cycle calculation and life cycle related target cost management. Position in internal accounting, invoice preparation and model-based optimization of the intertemporal cost structure . 1st edition Wiesbaden: Dt. Univ.-Verl. (Gabler Edition Science).
- Schmidt, FR (2000): Life cycle target costing. A concept for integrating life cycle orientation into target costing . As Ms. dr. Aachen: Shaker (reports from business administration).
- Beate Kremin book: Strategic cost management: Basics and modern instruments . Business publisher Dr. Th. Gabler / GWV Fachverlage GmbH, Wiesbaden 2004, ISBN 3-409-32266-3 , p. 144 .
- Zehbold, C. (1996): Life cycle costing, 1st edition, Wiesbaden, pp. 78f., ISBN 3409121536
- Geissdoerfer, K. (2009): Total Cost of Ownership (TCO) and Life Cycle Costing (LCC): Use and models: A comparison between Germany and the USA, LIT-Verlag, ISBN 3825818632
- Pfohl, Markus Chr. (2002): Prototype-based life cycle calculation. Munich: Franz Vahlen
- Franz, K.-P. / Kajüter, P. (2002): Cost management - increasing value through systematic cost control, 2., revised. u. exp. Edition, Stuttgart 2002, p. 580, ISBN 3791019910
- cf. Bernd Minkler: Armaments project of the Bundeswehr: "Too expensive - too late - too little performance" - that was yesterday , in: Hardthöhenkurier (HHK) 4/2013, pp. 10-13 ( online as PDF ( memento of the original from February 26th 2014 in the Internet Archive ) Info: The archive link was automatically inserted and not yet checked. Please check the original and archive link according to the instructions and then remove this notice. ).
- Ewert, R. / Wagenhofer, A. (2008): Internal company accounting, 7., revised. Ed., Berlin a. a. 2008, p. 297 (quoted from: Schields, Young (1991), p. 39)
- Franz, K.-P. / Kajüter, P. (2002): Cost management - increasing value through systematic cost control, 2., revised. u. exp. Edition, Stuttgart 2002, p. 579f, ISBN 3791019910