DOP024

Concept of Product Life Cycle Costing
F. Freiberg
[email protected]
Department of Management and Economics, Faculty of Mechanical Engineering,

Czech Technical University, Horská 3, 128 00 Praha 2, Czech Republic
The need for sustainable development increasingly affects the behaviour of the
corporate sector. The main influencing factors include an expanding regulatory framework
and more stringent environmental protection standards. However, if a better match between
the corporate behaviour and the principles of sustainable development is to be achieved,
businesses themselves will have to be active in seeking ways of meeting social,
environmental and economic objectives [lit. 1]. Manufacturers will have to assume a larger
degree of responsibility for activities related to the life cycle of their products after the
purchasing and installation stage. [lit. 3].
Life cycle management is an approach supporting sustainable development and the

most efficient possible use of resources. Based on the life cycle concept the costs and benefits
of strategic aims and choices can be understood and justified in a comprehensive manner. Life
cycle management covers the entire life cycle of a product with a view to maximising value
along the life cycle while meeting cost and environmental requirements. Integral components
of this value are, for example, reliability, costs, manufacturability, operational capacity,
usefulness, usability, recycling capacity and other environmental aspects [lit. 2].
One important part of life cycle management is life cycle costing. The objective of this
calculation is to optimise the manufacturing, maintenance and operation of a product (e.g.
manufacturing equipment) for the period of its usability based on establishing all the
important cost items over this period. This facilitates a quantified assessment of various
product design alternatives, comparison of cost items at various stages of the product life
cycle and comparison between the stages with a view to choosing the optimal alternative.
The life cycle costing process includes identification of items to be monitored,

identification of the cost structure, definition of links to estimate costs and establishing a
method for formulating life cycle costs [lit. 4].
The cost items monitored include all costs incurred in relation to manufacturing of a
product until its disposal at the end of its life cycle. The items should be structured so as to
allow for identification of potential links between various items with a view to establishing
optimal life cycle costs. The structure of cost items will always depend on the nature of the
product and it should always facilitate life cycle cost analysis. The purpose of estimating cost
links is to express cost items as a function of one or more independent variables. The final
stage of the calculation process is determination of a method for formulating life cycle costs.
As regards manufacturing facilities, the calculation of life cycle costs is a means of

achieving an informed and effective decision based on combination of initial manufacturing
costs and operational costs. Here the life cycle costs concept entails considerations over all
relevant costs and benefits related to the acquisition and use of the facility.
Despite businesses’ growing awareness of aspects related to life cycle costing the use
of this method in corporate practice is still insufficient. There is a number of reasons for the
generally lower level of acceptance of the life cycle costing method. One of major reasons is
lack of motivation resulting, above all, from insufficient trust in the outcomes and
achievements of the methodology. It is important to overcome the current situation where
preference is given to assessing products based on manufacturing costs, and to short-term
effects, where the link between manufacturing and future costs is ignored and where there is a
lack of knowledge of the life cycle costing methods and their use. A wider implementation of
the life cycle costing methodology is still being hampered by a lack of reliable information.
Data on life cycle performance are often missing for many components and systems (data on
maintenance, lifespan, replacement regimes, performance and time aspects of operation, etc.).
There are three major drivers behind the costs of a product life cycle from its initiation
until its termination: business costs, user costs and social costs [lit. 2]. The objective of the
life cycle concept is to maximise the value of the product while keeping the manufacturer,
user and social costs. Manufacturer costs include those related to various corporate activities,
for example during planning, design, development, manufacturing, assembly, distribution and
servicing of products. These are all costs incurred from the moment when a demand for
delivery arises until dispatching the product to the customer. User costs are those related to
activities carried out by the user. They cover the period from product delivery to its disposal
where the ownership of the product ends. These costs may also include recycling and disposal
at the expense of the user. Social costs are those which burden the society when the product is
being used and, in particular, those related to its safe recycling or disposal.
The pressure for implementation of principles of sustainable development in corporate

decision-making processes is increasing continuously. Other aspects concerning product life
cycle management are also subject to this pressure. Life cycle cost management appears to be
a useful approach to a comprehensive assessment of economic, environmental and social
impacts of the life cycle of a product. It is necessary to realise the importance of costs
throughout the full life cycle of a product in order to adopt measures to optimise the product
value in relation to the financial resources used.
References:
[1] LABUSCHANGE, C.: Sustainable Project Life Cycle Management: the need to integrate
life cycles in the manufacturing sector Int. Journal of Project Management 23, Elsevier,
2005 pp. 159-168.
[2] PRASAD, B.: A Model for Optimizing Performance based on Reliability, Life Cycle Cost
and other Measurements. Production Planning & Kontrol, Vol. 10, NO. 3, 1999, pp. č.
286-300.
[3] WESTKAEMPFER, E.: Economic and Ecological Aspects in Product Life Cycle
Evaluation. Keynote paper, CIRP General Assembly, Sydney, Proc Instn Mech Engrs
Vol 215 Part B, 2000, pp. č. 599-612.
[4] WOODWARD, D. G.: Life Cycle Costing – Theory, Information Acquisition and
Application. International Journal of Project Management, Vol. 15, No 6, 1997, pp.335-
344.
This research has been supported by MŠMT grant No. MSM 684077006.

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Concept of Product Life Cycle Costing

Department of Management and Economics, Faculty of Mechanical Engineering,

Life cycle management is an approach supporting sustainable development and the

The life cycle costing process includes identification of items to be monitored,

As regards manufacturing facilities, the calculation of life cycle costs is a means of

The pressure for implementation of principles of sustainable development in corporate

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