Life cycle costing is DEAD!

Life cycle costing was a phrase that was bandied about towards the late 1980's. A form of thinking that came to be known as Terotechnology.

This was a very short lived term and wave and one that has all but faded from existence. But the term Life cycle costing still does for some reason.

Since the start of the 21st century I have been using the term Whole of Life Asset Management in place of Life Cycle Costing. Why? Because LCC thinking is far too constricted, to limited, and far too focused only on costs.

It was about the turn of the century (I like saying it like that) that it started to become clear that a focus on cost alone was not only too narrow, but it was actually detrimental to the goals of achieving sustainably low costs.

Have you ever worked for a company where the costs of maintenance was the overriding focus of the company? Frightening isn't it?

They cut, and cut, and cut, until everyone is running around trying to fix things with cable ties, coat hangers and rope.

Instead we really need to be thinking not only about costs, but about the performance we require, the risk we are willing to tolerate, and we look at it over the life of the requirements; not just the life of the assets.

This is whole-of-life asset management in my view. A viewpoint that looks at the life of the requirement and not the life of the asset. meaning... that there may be two, three or four "pumps" (for example) installed during the lifetime of the requirement of a water treatment plant. (Say)

This is how we get closer to Net Present Value, this is how we deal with whole of life asset management not just life cycle costs.

The other part of the equation is of course the performance and risk elements. This is where the cost thinking falls off the rails. Because focusing on cost without understanding the implications on performance and risk, means almost certain disaster....

That does not mean that reduced costs equals less risk.. to the contrary. In most industries it is easy to find examples where reduced costs will actually reduce the exposure to risk! Particularly where over maintenance has become the way of life. (often in the name of safety)

To get back to my original point....

Life cycle costing is dead. And it belongs in the scrap heap of history. Today's focus is on Whole-of-Life asset management, looking at value - not just costs in isolation.