Whenever developing a system or building, the most important thing before designing is its economic evaluation to determine its viability in the long run. There are several costs along with the initial cost of building a system that are taken into consideration when determining its total value. The initial cost of a system is the first thing people consider when deciding between two different systems or assets. Still, other fees, such as the ownership cost, price of purchasing the land, operating, and maintaining the building, are also considered. As a result, it is essential to optimize the total cost of a system throughout its life cycle from the acquisition to the disposal of an asset ( Babashamsi et al., 2016). The Life-cycle cost analysis (LCCA) is one of the methods that help organizations evaluate a system’s overall cost before undertaking a project.
LCAA is a method of assessing and evaluating the total relevant costs of a system by taking into account the costs of acquiring, managing, operating and disposing off the system. It is concerned with optimizing the value of physical assets or operations by considering all the cost factors relating to the system during its operational life ( Kshirsagar, El‐Gafy & Abdelhamid, 2010). This determination of a system’s life cycle can help evaluate its value and make better decisions for a new system or structure by putting into consideration the time value and variation in the costs between alternatives. As such, this LCCA method allows a company to evaluate the economic value of a system throughout its life-cycle before commencing the implementation.
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The LCCA method was introduced in 1960, where it spread to several business sectors helping to improve the cost-effectiveness of a system. The method is based on product development, and provides guidelines that focus on features of a system that can impact its overall costs ( Kshirsagar, El‐Gafy & Abdelhamid, 2010) . In essence, an analysis of a system through the LCAA includes consideration of all costs associated with the research, design and development. This is because LCAA considers all costs from the conception, design, maintenance and operation, until disposal ( Harris & Fitzgerald, 2017) . A comparison of the different life cycle costs for various design configurations allows a company to determine the balance between initial costs and overall-expenses of the system.
The LCCA allows a company to assess the initial and future costs of a system in determining whether it can be supported effectively after implementation. It also makes it possible to determine the total value of a system and examine where adjustments can be made to suit the budget. This method is useful when comparing two projects that have similar benefits and performances but differ in terms of their costs of operation ( Harris & Fitzgerald, 2017) . The comparison allows a company to make the right decision regarding the most appropriate system that maximizes net savings with the lowest overall price among the alternatives.
Purpose of LCAA
Organizations are using the life-cycle costing analysis methods in examining and determining how much a system life span will cost. It takes into account the costs from design to disposal of the system while balancing the starting cost with the overall expenses of implementing a system. Therefore, the purpose of this method is to help in making informed decisions on whether to implement a system or not ( Kshirsagar, El‐Gafy & Abdelhamid, 2010) . It is based on electing the best alternative from the available options that will meet the desired benefits while saving on the costs. These designs will have different life cycles including varying initial, operating and maintenance costs, and a person has to select one with the lowest
Secondly, an LCCA method is used for the purpose of estimating the total costs of different system alternatives and help an organization select the best placed design. The selected alternative is one that provides high benefits with the lowest overall cost of management and operations ( Fuller, 2010). This means the LCCA helps in informed decisions when selecting a system design that will deliver tremendous benefits with low prices. The LCCA is supposed to be performed at the start of a proposal project before putting it up to allow for refining the design and ensuring a reduction in life-cycle costs ( Harris & Fitzgerald, 2017) . Another role of the LCCA is helping to assess the economic effects of an alternative model of a building system that will be used in making comparisons.
Benefits of LCCA
The LCCA helps in analyzing the business function interrelationships that allow managers to predict accurate revenues before the project commences. Managers can use the analysis report on expenditure to determine how well their projects will perform at the initial stage and whether they can continue with the plan. Secondly, the LCCA can help organizations decide whether to develop the project or not based on the costing perspective ( Eamon et al., 2012) . The LCCA ensures that all costs associated with developing a system are available at the beginning of the project implementation, thus making it possible to make informed decisions on implementing the system or project.
This LCCA method of evaluating designs and systems can help analyze and estimate the lowest cost alternative between two systems and select one that accomplishes the paper objective. It can be greatly useful when an organization is looking for a different alternative that will create similar performance but at lower costs ( Babashamsi et al., 2016) . It is used in comparing the initial and operating prices of two systems that will help select the best alternative to reduce costs.
At the same time, the LCCA method allows individuals to interpret specific measures of economic evaluation by performing the analysis earlier in the process. This allows for refining the system and reducing the cost of a life-cycle. With this LCCA analysis, one can estimate the cost of operation, maintenance, and use of the system that will help in making appropriate decisions as opposed to focusing on the purchase price only ( Kshirsagar, El‐Gafy & Abdelhamid, 2010) . Therefore, the life-cycle cost analysis is crucial when considered from a cost-accounting perspective as it creates a table of reference depicting the cost that will be incurred when building a system. The system will be constructed if the total charge calculated is visible and will be discarded if otherwise.
The life-cycle costing analysis is conducted on the basis of future long term costs and savings as opposed to the ROI-based calculations. It assesses all expenses that occur over the system’s lifetime, including the concept planning, design, construction, operations, and disposal ( Harris & Fitzgerald, 2017) . The method is mostly used when an organization wishes to undertake the most effective means by ascertaining the lowest life-cycle cost. The analysis helps project managers to make the right decisions and select projects that are not based entirely on the lowest initial costs but selecting systems that take into account the future costs of a project. This is because a design might have a small initial cost, but its future prices are incredibly high ( Babashamsi et al., 2016) . Therefore, the LCCA help in ensuring the organization does not suffer from any future surprises due to poor decisions.
In most cases, the price or cost plays a crucial role when making a decision on the most appropriate design to choose for a project. However, relying on initial costs alone do not tell the whole story regarding the total value of an asset that requires examination of other costs for the system ( Fuller, 2010) . The first expenses of creating a project account for only 2 percent of the total costs, with a majority of the costs depending on future expenses, including operations and maintenance ( Kshirsagar, El‐Gafy & Abdelhamid, 2010) . In performing the LCCA, the company tallies all the costs, including purchase price, repairs, support, and upgrades. The analysis should also involve the less commonly considered costs that the company incurs as operational costs.
Factors
Several factors including the cost, period, and alternative comparison available are crucial when conducting an LCAA to make it effective. For example, the method evaluates some of the cost-related factors such as operation, maintenance, and replacement costs during the analysis. The expenses are involved in acquiring constructing or purchasing a system together with the financial, residual, and non-monetary damages ( Harris & Fitzgerald, 2017) . Every system-related costs fall into the initial costs, operational or maintenance fees, financial charges, and non-monetary costs or benefits.
The initial prices are those costs incurred when acquiring the land, constructing or purchasing equipment to facilitate operations. They may include capital investment costs for obtaining the asset or renovating it. These costs can be considered relevant since they differ among design alternatives ( Eamon et al., 2012) . On the other hand, the operating and maintenance costs are the non-fuel operating expenses that can be harder to estimate when compared to the initial costs. In most cases, the operating and maintenance costs vary from one system to another, which makes them relevant in decision making.
The costs are relevant to decision making in circumstances where they differ between available alternatives and when they are large enough to make a difference in the life-cycle cost of a project. Costs within each category that are relevant to making decisions are often used in decision making for any investment ( Harris & Fitzgerald, 2017) . The relevance of costs is determined when they are different for one alternative compared to another.
Application of LCCA
The life-cycle costing analysis for each project is computed and compared with each other before selecting the most viable option. The system with the lowest LCC is the one that qualifies to be implemented based on higher returns and low costs. In this regard, the LCC analysis can be applied in making different decisions with the focus on selecting the alternative with the least cost and the most benefit ( Eamon et al., 2012) . For example, the method is used in comparing the long-run expenses of different system designs and use the report in choosing the most affordable option that will not incur higher future costs in maintenance and operations.
The application starts during the initial stage of system implementation where the project manager creates a benchmark budget using past projects data for the project. The team can then make decisions regarding the final design of the system by comparing the design alternatives in terms of the cost and benefits ( Babashamsi et al., 2016) . The LCCA is best suited when conducting the economic evaluation of design choices with the potential to satisfy required performance levels while having different values. For example, the method can be applied when evaluating investments with a substantial initial outlay and determine whether it is justifiable to build.
The life-cycle costing analysis also helps in selecting a project among design alternatives with the same level of performance or benefits. The report allows determining the design with the lowest maintenance and operational costs among different options with the same interests ( Kshirsagar, El‐Gafy & Abdelhamid, 2010) . However, if the benefits between plans vary among each other, then the organization cannot compare the based on the initial costs. As a result, the comparison should be made from a cost-benefit analysis that determines the monetary value of each design for the costs and benefits.
Conclusion
The life-cycle costing analysis is starting to become more popular with an increasing interest in several industries. It is used to improve the cost-effectiveness of a system and all upgrades by providing information for decision making. This LCAA method should be accomplished at the first stage of project or system development before deciding to implement it. Companies looking to implement a system or design for a building can benefit from using the LCCA in making decisions for long-term performance. The guidelines for the LCCA requires that one considers the long term costs of a project, including utilities, maintenance, and operations, other than the initial costs of a building. These guidelines can also help an organization calculate the costs of developing a system and use them in informing the implementation decisions. This means the development of a particular order will be based on a calculation of the total costs of a system and not the initial costs alone.
References
Babashamsi, P., Yusoff, N. I. M., Ceylan, H., Nor, N. G. M., & Jenatabadi, H. S. (2016). Evaluation of pavement life cycle cost analysis: Review and analysis. International Journal of Pavement Research and Technology , 9 (4), 241-254.
Eamon, C. D., Jensen, E. A., Grace, N. F., & Shi, X. (2012). Life-cycle cost analysis of alternative reinforcement materials for bridge superstructures considering cost and maintenance uncertainties. Journal of Materials in Civil Engineering , 24 (4), 373-380.
Fuller, S. (2010). Life-cycle cost analysis (LCCA). Whole building design guide .
Harris, D., & Fitzgerald, L. (2017). Life-cycle cost analysis (LCCA): a comparison of commercial flooring. Facilities .
Kshirsagar, A. S., El‐Gafy, M. A., & Abdelhamid, T. S. (2010). Suitability of life cycle cost analysis (LCCA) as asset management tools for institutional buildings. Journal of Facilities Management .
