The term ‗project life cycle cost‘ has been defined as follows: It includes the costs associated with acquiring. using, caring for and disposing of physical assets. including the feasibility studies, research, design, development, production, maintenance, replacement and disposal, as well as support, training and operating costs generated by the acquisition, use, maintenance and replacement of permanent physical assets‘.
Project Life Cycle Costs
Product life cycle costs are incurred for products and services from their design stage through development to market launch, production and sales, and their eventual withdrawal from the market.
Acquisition cost, i.e. costs of research, design, testing, production, construction, or purchase of capital equipment.
Transportation and handling costs of capital equipment
Maintenance costs of capital equipment
Operations costs, i.e. the costs incurred in operations, such as energy costs, and various facility and other utility costs.
Training costs i.e. operator and maintenance training.
Inventory costs i.e. cost of holding spare parts, warehousing etc.
Technical data costs, i.e. costs of purchasing any technical data.
Retirement and disposal costs at the end of life or the capital equipment life.
Management Accountants’ Role in Project Life Cycle Costing.
Project life-cycle costing is a new concept which places new demands upon the Management Accountant. The development of realistic project life cycle costing models will require the accountant to develop an effective working relationship with the operational researcher and the systems analyst, as well as with those involved in the technological system, particularly engi-neers.
Engineers require a greater contribution from accountants in terms of effort and interest throughout the life of a physical asset. A key question for many accountants will be whether the costs of developing realistic life cycle costs will outweigh the benefits to be derived from their availability. Lifecycle costing in the management of Physical Assets, much value can be obtained by thinking in lifecycle costing concepts whenever a decision affecting the design and operation of a physical asset is to be made.
The concept project life cycle costing has become more widely accepted in recent years. The philosophy of it is quite simple. It involved accounting for all costs over the life of the decision which are influenced. directly by the decision.
Terrotechnology is concerned with pursuit of economic life-cycle costs. This is quite simply means trying to ensure that the assets produce the highest possible benefit for least cost. To do this, it is necessary to record the cost of designing, buying, installing, operating, and maintaining the asset, together with a record of the benefits produced Most organizations keep a record of the initial capital costs, if only for asset accounting purposes.
Uses of Project Life Cycle Costing
The project life cycle costing is especially useful in the following:
Projects operate in capital intensive industries
Projects have a sizable, on-going constructing program
Projects dependent on expensive or numerous items of plant with consequent substantial replacement programs
Projects considering major expansion
Projects contemplating the purchase/design/development of expensive new technology
Projects sensitive to disruption due to down-time.