LIFE CYCLE COST

Life cycle cost



Life cycle cost

Introduction

Life-cycle cost analysis is a method of determining the entire cost of a structure, product, or component over its expected useful life. The cost of operating, maintaining, and using the item is added to the purchase price. For items that last longer than a couple of years, this is a more realistic way of evaluating cost than simply looking at the purchase price. Conducting a life-cycle cost analysis isn't as difficult as it appears. This report explains why and how to conduct life-cycle cost analyses and includes information on using software tools that reduce the difficulty of performing life-cycle cost analyses. Don't confuse life-cycle cost analysis with life-cycle assessments. Life-cycle assessments are used to evaluate the environmental costs associated with a product, process, structure, or activity. They identify energy and materials used and wastes released to the environment. Life-cycle assessments are explained in more detail in the “Life-Cycle Assessments Can Help You Make Sustainable Choices” section of this report.

The first stage of a life cycle analysis is called an "inventory analysis." In an inventory analysis, the goal is to examine all the inputs and outputs in a product's life cycle, beginning with what product is composed of, where those materials came from, where they go, and the inputs and outputs related to those component materials during their lifetime. It is also necessary to include the inputs and outputs during the product's use, such as whether or not the product uses electricity. The purpose of the inventory analysis is to quantify what comes in and what goes out, including the energy and material associated with materials extraction, product manufacture and assembly, distribution, use and disposal and the environmental emissions that result. The next stage of a life cycle analysis is the impact analysis, in which the environmental impacts identified in the previous stage are enumerated, such as the environmental impacts of generating energy for the processes and the hazardous wastes emitted in the manufacturing process. Once the environmental impacts of all the inputs and outputs of a product's lifecycle are analyzed, the life cycle analysis generates a number that represents how much the environment is affected.

However, the major purpose of the analysis is to evaluate, once the inputs and outputs are quantified, how the product affects the environment throughout its lifecycle. Once its general environmental impact is calculated, the next step is to conduct an improvement analysis to see how impact of the product on the environment. For example, conservation of energy or water in the manufacturing process will reduce the environmental impacts of that process. Substituting a less hazardous chemical in place of a more toxic one would also reduce the impact. The change is then made in the inventory analysis to recalculate its total environmental impact.

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