Life-Cycle Costing (LCC)

Definition - What does Life-Cycle Costing (LCC) mean?

Life-cycle costing (LCC) is a technique used to estimate the total cost of ownership. It is a system that tracks and accumulates the actual costs and revenues attributable to cost object from its invention to its abandonment. It allows comparative cost assessments to be made over a specific period of time, taking into account relevant economic factors both in terms of initial capital costs and future operational and asset replacement cost.

Life-cycle costing is also known as total cost of ownership (TCO).

Corrosionpedia explains Life-Cycle Costing (LCC)

The process of identifying and documenting all the costs involved over the life of an asset is known as life-cycle costing (LCC). The life-cycle costing process can be as simple as a table of expected annual costs, or as complex as a computerized model that allows for the creation of scenarios based on assumptions about future cost drivers.

Typical areas of expenditure used in calculating the LCC include:

  • Planning/design
  • Construction and acquisition
  • Operations/maintenance
  • Renewal and rehabilitation
  • Depreciation and cost of finance
  • Replacement or disposal

LCC analysis is used to assess corrosion management alternatives. The current cost of corrosion is calculated by LCC analysis and characterized by the annualized value. The cost of corrosion is defined as the corrosion fraction of design, manufacturing, operation and maintenance, technology development and asset value loss.

For example, the LCC of a structure is defined as the cost that includes all cash expenditures to the end of the structure’s life, including construction cost, the cost of maintenance, and the cost of outages. The design with the lowest LCC provides the service at the lowest cost.

Similarly, with highway bridges, the optimized contribution of each of the contributing components is calculated through LCC analysis, and characterized by the annualized value. The selection of alternative approaches to controlling the cost of corrosion is therefore based on annualized values of initial or capital costs as well as the maintenance over the life of the structure and its replacement.

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