Life Cycle Costing

Life Cycle Cost (LCC) is an estimate of total cost to design, develop, produce, deploy, and sustain a particular program. LCC is also called "Cradle to Grave" cost. Similar to Life Cycle Assessment (LCA), the Life Cycle Costing (LCC) has four cost components namely:

Most large corporations have independent cost estimating activities to assess the program's financial health at various program milestone events. Since the cost data is proprietary and sharing such information is anti-competitive, it is very hard to get cost data in the public domain. However, the cost estimating process steps and determining the cost for individual cost elements have standardized processes.

GAO (US Government Accountability Office) has published a 440 page Cost Estimating and Assessment Guide which provides a detail account of cost estimating process steps. To develop a credible and accurate LCC, GAO guide recommends a twelve step process.

Similar to LCA, conducting LCC requires specialized skill and significant amount of time. Often times, taking short cuts to the twelve step process will result in unreliable estimate. GAO has given many "real world" examples of how poor cost estimate of programs lead to higher cost during the execution phase or complete cancelation of the programs.

Developing a detailed Work Breakdown Structure (WBS) is an essential step in conducting LCC. Sometimes, the WBS is readily available to the cost estimator and sometimes one need to work with the customer to develop it. In any case, a detailed and a standardized WBS will provide an estimate that is easy to compare with prior estimates or actual cost of a similar system. If your company has not created a standardized WBS, United States Department of Defense has published a MIL-STD-881C which provides a detailed framework for developing a WBS. Although MIL-STD-881C is for military acquisition, the following Appendices in Mil-STD-881C standard will help the commercial sectors to develop their own standard WBS:
Appendix : Electronic System
Appendix K : Automated Information System

At the lowest WBS element, the cost is estimated using one of the four methods