The Life-cycle- Cost Concept And How It Effects Us
The Life-cycle- Cost Concept And How It Effects Us
A new realization is spreading through our materialistic world a new concept is gaining recognition in the commercial field and also entered our private life. It is based on the discovery that a newly bought product does not stop costing after its purchase but keeps costing us throughout its life cycle. And it is now realized it is the total costs of a product throughout its life cycle that gives us the real costs!
It is therefore often the casenbsp; that an item with a cheaper purchase price but a high ongoing cost factor turns out to be much more expensive than say an product with a higher initial cost. Seemingly more expensive at the moment of purchase but with lower maintenance costs throughout its lifecycle it may well be a cheaper one!
The clearest case to demonstrate this may be a car purchased at a higher price but with lower ongoing running maintenance and replacement costs it may turn out to be the actually cheaper or cost effective vehicle than say a cheaper car purchased at the spur of the moment but with high ongoing maintenance costs plus a petrol thirst to match.
In many hospitals and nursing homes the installation of a flooring with a polyurethene wear layer will reduce the cleaning costs by up to fifty percent. The initial purchase of such a flooring may be dearer but as a result of a decision in its favour the cleaning costs in these institutions may half. If a mediumsize nursing home has an annual cleaning bill of 200 000. the saving is often more than 100 000. resulting in a saving of 1000 000.mdash;within ten years. This amount thus saved may be used for healing people or caring for them!
This principle of costeffectiveness applies to every item ndash; the total cost throughout its lifecycle give us the real or total costs. In our fastliving consumer society where products are being bought purely by comparing prices in the end more money will have to be spent as these may not last as long or when repairs set in. Do we remember our grandparents solid oak furniture that have been passed down through generations? Rocksolid they have outlived many fashion furniture that have been acquired for no other reason than being perceived as cheap and subsequently had to be replaced several times over.
But times are changing and we become more and more enlightened when investing in new items and equipment.
Accounting has also changed and new factors are being considered when deriving a true cost factor of an item: Not only do we now state the purchase price but also incorporate a replacement value and disposal cost before we are able to determine our total cost of a product.
This is already law in an increasing number of countries as the cost of disposing of material in a responsible way is costly too and has to be incorporated already in the cost price and subsequently in a purchase price.
To derive at all these new cost factors may require some investigative work however there are now in the professional field an increasingly number of lifecyclecost experts with all their facts already recorded in their specialized software for instant assistance. Sometimes they are called Logisticians or have other specialized names and are already indispensible in some industries.
Therefore the total sum of a products cost factors plus the ongoing costs throughout a products lifetime are the true expenses for the customer and when calculated that way responsible accounting will ensure business success.
PETER FREDERICK
peter.fredericklifeontheroad.com
About the writer:nbsp;nbsp; For most of my working life I have been in Sales either retail wholesale or manufacturers representative. Because of this I have met a lot of people from different cultures and organisations and observed their psychological makeup and how people interact with one another. This has given me a chance to observe and discover some positive and not so positive fundamentals in contact with one another.
During this time an opportunity presented itself for me to start writing and since then I have written a lot because of the pleasure I get from writing. I like the challenge of finding the right words to craft the perfect sentences which in turn convey a perfect story. .Whilst I have not achieved this stage of perfection just to think and be able to write down my thoughts is for me something very stimulating and satisfying.
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