Sustainability is developing in as important target for an increasing number of industries and governments. Especially in a faster moving world, which is determined by quarterly period reports, a long term orientation can be a competitive advantage for unlisted companies.
In the 1960´s the US Department of Defense began to develop a tool to handle increasing costs. They recognized that the purchase price was not the only important criteria. Training or maintaining costs had to be considered for the total cost calculation, too. However, several definitions of Life cycle costing (LCC) exist that tend to be similar: ’monitoring the cost incurred throughout a product’s life cycle’ (Woodward, 1997) or ‘LCC is the sum of all costs incurred during the life cycle of a building, system or product. It includes the costs of the project, development, and acquisition, operation, conservation and maintenance and salvage value if it exists.’ (Goralczyk, and Kulczycka, 2005). In the following essay several functions of life cycle costing will be drawn up. Furthermore, advantages, disadvantages and criticism of this procedure will be analyzed.
Table of Contents
- Introduction
- Functions of LCC
- Discussion of LCC
- Conclusion
- References
Objectives and Key Themes
This essay aims to analyze life cycle costing (LCC) as a management accounting tool. It explores the functions of LCC, examining its benefits and drawbacks in both theory and practice. The essay also discusses the challenges of implementing LCC and proposes potential solutions.
- The functions and applications of Life Cycle Costing (LCC).
- Advantages and disadvantages of implementing LCC.
- Challenges in predicting future costs and the limitations of LCC.
- The importance of LCC for long-term strategic decision-making.
- The role of LCC in achieving a competitive advantage.
Chapter Summaries
Introduction: This introductory section establishes the context of life cycle costing (LCC) within a rapidly changing business environment emphasizing the growing importance of long-term sustainability. It introduces competing definitions of LCC, highlighting the core concept of encompassing all costs throughout a product's lifespan, from initial development to eventual disposal or salvage. The introduction sets the stage for a detailed exploration of LCC's functions, advantages, and challenges.
Functions of LCC: This chapter delves into the practical applications of LCC. It presents LCC as a methodology providing a holistic cost view, contrasting it with full cost accounting and total cost accounting. The chapter highlights LCC's ability to analyze costs throughout a product's entire life cycle, enabling early identification of cost drivers and optimization opportunities. This involves integrating financial and less quantifiable costs and considering the interaction of various cost elements across different life cycle phases. Furthermore, it emphasizes the dynamic nature of LCC, adapting to the evolving needs of decision-makers at various product life cycle stages, from planning to control and optimization.
Discussion of LCC: This section critically examines the practical implementation of LCC, exploring both its benefits and limitations. It highlights the initial resistance often encountered due to a lack of employee understanding and the perceived difficulty in predicting future costs. The discussion acknowledges the tendency to rely on readily available data such as acquisition and starting costs due to their ease of calculation and reliability, even though this approach compromises the comprehensive benefits of LCC. This section implicitly advocates for overcoming these hurdles through improved employee training, clearer guidelines, and a more holistic approach to cost forecasting.
Keywords
Life cycle costing, LCC, management accounting, cost accounting, full cost accounting, total cost accounting, cost prediction, strategic decision-making, sustainability, competitive advantage, cost optimization, product life cycle.
Life Cycle Costing (LCC): A Comprehensive Analysis - FAQ
What is the purpose of this document?
This document provides a comprehensive overview of Life Cycle Costing (LCC), including its objectives, key themes, chapter summaries, and keywords. It serves as a preview of a larger work analyzing LCC as a management accounting tool.
What are the key themes explored in this analysis of Life Cycle Costing?
The analysis explores the functions and applications of LCC, its advantages and disadvantages, the challenges in predicting future costs, the importance of LCC for long-term strategic decision-making, and its role in achieving a competitive advantage. It also contrasts LCC with full cost accounting and total cost accounting.
What are the main chapters covered in the document?
The document includes an introduction, a chapter detailing the functions of LCC, a discussion chapter critically examining its implementation, a conclusion (not fully detailed in this preview), and a list of references (not included in this preview).
What are the advantages and disadvantages of implementing LCC discussed in the document?
The advantages include a holistic cost view, enabling early identification of cost drivers and optimization opportunities. Disadvantages include initial resistance due to lack of employee understanding, difficulty in predicting future costs, and the tendency to rely on readily available (but incomplete) data.
How does this analysis define Life Cycle Costing (LCC)?
The analysis introduces competing definitions but highlights the core concept of encompassing all costs throughout a product's lifespan, from initial development to eventual disposal or salvage.
What are some of the challenges in implementing LCC?
Challenges include predicting future costs accurately, overcoming initial employee resistance due to a lack of understanding, and the tendency to rely on easily accessible data rather than a fully comprehensive cost analysis.
What is the role of LCC in strategic decision-making and achieving competitive advantage?
The analysis emphasizes the importance of LCC for long-term strategic decision-making and its role in achieving a competitive advantage by providing a holistic view of costs throughout a product's life cycle, enabling better cost optimization and resource allocation.
What are the keywords associated with this analysis of Life Cycle Costing?
Keywords include: Life cycle costing, LCC, management accounting, cost accounting, full cost accounting, total cost accounting, cost prediction, strategic decision-making, sustainability, competitive advantage, cost optimization, product life cycle.
What types of costs are considered within the framework of LCC?
LCC considers both financial and less quantifiable costs, integrating various cost elements across different life cycle phases. It aims for a comprehensive view beyond simply acquisition and starting costs.
How does LCC compare to full cost accounting and total cost accounting?
The document contrasts LCC with full cost accounting and total cost accounting, highlighting LCC's holistic approach that encompasses the entire product lifecycle, providing a more comprehensive cost view.
- Arbeit zitieren
- Roberto Niesing (Autor:in), 2008, Life cycle costing. Advantages, disadvantages and criticism of this procedure, München, GRIN Verlag, https://www.grin.com/document/92851
