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17/06/2020 08:43:46 PM

Life cycle costing

Life cycle costing is the process of compiling all costs that the owner or producer of an asset will incur over its lifespan. The concept applies to several decision areas.

In capital budgeting, the total cost of ownership is compiled and then reduced to its present value in order to determine the expected return on investment (ROI) and net cash flows. This information is a key part of the decision to acquire an asset.

In the procurement area, the purchasing staff seeks to examine the total cost of ownership of an asset in order to place orders for those items that are the least expensive, in aggregate, to install, operate, maintain, and dispose of.

In the engineering and production areas, life cycle costing is used to develop and manufacture goods that will have the least cost to the customer to install, operate, maintain, and dispose of.

In the customer service and field service areas, life cycle costing is focused on minimizing the amount of warranty, replacement, and field service work that must be performed on products over their useful lives.

An events example of this is festivals held on farm sites. Camping in fields at such events is commonplace; however this can cause environmental issues and the fields need to be returned to their ‘pre-festival’ state as quickly as possible. If the site isn’t cleared effectively afterwards it could be that when the field is next ploughed remaining bottles, cans and tent pegs damage farm equipment; or if the field is to be grazed by animals they may be injured by glass bottles, or eat a tent peg. At lastonbury they have made use of large powerful magnets attached to tractors that collect all metal objects rapidly from the fields prior to animals being returned. Collected metal could then be recycled. Other inventions have been  the  ‘biodegradable  tent  peg’  for  use  at  festivals  to  avoid  the  problems  of metal tent pegs being left in the ground. The use of ‘recyclable tents’ made 100% from one material (with the tent pegs physically tied to the tent) can be ordered with festival tickets for collection at the event and taken to a recycling point onsite at the end of the event has been another way to aid the rapid return of the field to its agricultural use.
In hospitality, tourism and events many organisations are taking their responsibility to the environment seriously and are producing detailed public environmental statements and producing data which can be used for benchmarking their progress.
Thomas Cook produced a report for its chain of Hi Hotels giving a breakdown of its aims and targets and also a sample accounting report of its use of water and waste  production.  This  provides  some  detailed  monthly  EMA  information  (Hi 
Hotels International, 2010). The Accor hotel group as well as publishing its environmental footprint report has designed a calculator which will allow corporate events organisers to track the  carbon  footprint  of  conferences,  it  takes  into  consideration  the  number  of participants, menu choice and accommodation.