Creating Competitive Advantage with Life Cycle Costing

Life cycle costing provides a long-term perspective to product or service cost. A company should manage and evaluate life cycle costs, understand all relationships of the product life cycle, and implement actions that take advantage of revenue enhancement and cost reduction opportunities. Exploiting customer linkages is the key idea behind the concept of life cycle costing which deals explicitly with the relationship between what a customer pays for the product and the total costs the customer incurs over the life cycle of using the product. Developing pricing strategy and managing costs over the life cycle of the product requires understanding of the factors affecting pricing and the sources of variability and incorporation of the knowledge of the same in cost management. LCC enables decision makers to analyze and understand the comprehensive view of the product life cycle costs from R&D and planning to disposal. LCC emphasizes the importance of an external focus and exploits both internal and external linkages in the value chain. Successful application of LCC provides a company with competitive advantage. Drawbacks of LCC are costly, time consuming, accuracy of data is doubtful, and obtaining data for analysis are a trying task.