Whole-Life Cost

What Is Whole-Life Cost?

Whole-life cost is the total expense of claiming an asset over its whole life, from purchase to disposal, as determined by financial analysis. It is otherwise called the life-cycle cost, the lifetime cost, "support to grave," or "belly to burial chamber." Whole-life cost incorporates purchase and establishment, design and building costs, operating costs, maintenance, associated financing costs, depreciation, and disposal costs.

Whole-life cost likewise considers certain costs that are generally neglected, for example, those connected with environmental and social impact factors. In the case of building a nuclear power station, it is feasible to work out the environmental impact of making the substantial regulation and the water required for copper refinement, notwithstanding different parts.

Though a number of options might be depicted as "great" for the environment, a whole-life cost analysis allows a determination of whether one solution conveys a lower or higher environmental cost than another.

Seeing Whole-Life Cost Analysis

Whole-life cost analysis is in many cases applied while assessing various options while investing in new assets and for examinations that endeavor to limit whole-life cost over the lifetime of an asset. It might likewise be utilized to choose two distinct ventures or to make acquisition choices.

While contrasting investment choices, a financial analyst must gander at all likely future costs, not just acquisition expenses. Normally, the attention is on the up-front capital costs of creation or acquisition, and numerous organizations fail to consider the longer-term costs of an asset. Disregarding whole-life costs, it's conceivable that an asset's return will probably be overestimated. While an asset might have low development costs, its purchase might lead to high maintenance or customer service costs from now on.

While most short-term costs — and even depreciation — can be promptly estimated or estimated, long-term costs are more hard to estimate. Likewise, factors, for example, environmental or social impact won't be quickly measured. By the by, whole-life costing might give a more accurate image of the true cost of an asset than most different methods.

The value of determining whole-life cost can be exhibited while thinking about the purchase of a large part of equipment for a factory. Consider for instance a machine that joins nylon rush to froth rubber cushions utilized in the construction of painting devices. Past the initial cost of purchasing and introducing the running machine, it will have quite a few parts requiring periodic maintenance and replacement. Such a machine may likewise introduce environmental hazards when cleaned or require complex dismantling to be discarded. The whole-life cost analysis of this equipment purchase will be critical in assessing the long-term financial benefit of its purchase and use.

Highlights

• Commonly, the attention is on the up-front capital costs of creation or acquisition, and numerous organizations fail to consider the longer-term costs of an asset.
• Whole-life cost incorporates purchase and establishment, design and building costs, operating costs, maintenance, associated financing costs, depreciation, and disposal costs.
• Whole-life cost is the total expense of claiming an asset over its whole life, from purchase to disposal.
• Whole-life cost likewise considers certain costs that are generally disregarded, for example, those connected with environmental and social impact factors.