Life-cycle cost analysis (LCCA) is the study of all the costs associated with processes, materials and goods from acquisition to ownership and maintenance, through to and including disposal. LCCA results in the estimated total cost of ownership (TCO) and can help determine the viability of a purchase or identify the best option among alternatives.
Often, the price is the dominant factor when choosing to buy a product service or process. However, initial costs really only tell a fraction of the reality about the TCO of an asset. The overall TCO includes direct and indirect expenses, as well as some intangible costs that may be assigned a dollar value.
In performing LCCA for a data center server, for example, one might tally purchase price, repairs, maintenance, upgrades, service or support contracts, network integration, security, software licenses and end-user training. The analysis should also include less commonly considered costs, such as the credit terms on which the company purchased the product.
Through analysis, the purchasing manager might assign a monetary value to intangible costs, such as systems management time, electricity used, downtime, insurance and other overhead. The total cost of ownership must be compared to the total benefits of ownership (TBO) to determine the viability or assess the value of a purchase, which can be done through a cost-benefit analysis.