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Einkaufslexikon
Life cycle costing: Complete cost analysis over the entire product life cycle
November 20, 2025
Life cycle costing covers all costs of a product or investment over its entire useful life. This holistic approach enables buyers to make well-founded decisions that go beyond the mere purchase price. Find out below what life cycle costing is, which methods are used and how to use them strategically in procurement management.
Key facts
- Considers acquisition, operating, maintenance and disposal costs over the entire useful life
- Enables objective supplier comparisons beyond the purchase price
- Reduces hidden follow-up costs through early identification of cost drivers
- Supports sustainable procurement decisions by including end-of-life costs
- Improves budget planning through accurate long-term forecasts
Inhalt
Definition: life cycle costing
Life cycle costing is a comprehensive cost accounting process that systematically records and evaluates all costs of a product, system or service over its entire life cycle.
Core elements of life cycle costing
The method is divided into four main cost categories:
- Acquisition costs: purchase price, installation, start-up
- Operating costs: energy, personnel, consumables
- Maintenance costs: maintenance, repairs, spare parts
- Disposal costs: dismantling, recycling, environmental requirements
Life cycle costing vs. traditional cost accounting
In contrast to traditional Cost estimate Life cycle costing not only looks at acquisition costs, but also all expenses arising over the useful life. This holistic view often reveals significant cost differences between seemingly cheap and actually economic solutions.
Importance of life cycle costing in purchasing
Life cycle costing is essential for strategic procurement decisions, as it provides an objective basis for evaluation of Total Cost of Ownership creates. It enables buyers to make optimal investment decisions in the long term and the Procurement controlling to professionalize.
Methods and procedures
The practical implementation of life cycle costing requires structured procedures and proven analysis methods in order to systematically record all relevant cost factors.
Cost recording phase model
The methodological approach follows a structured phase model:
- Definition phase: Definition of the period under consideration and system limits
- Data collection: recording of all cost-effective factors per life cycle phase
- Assessment: Monetary quantification and discounting of future costs
- Analysis: Comparing different alternatives and sensitivity analyses
Cost driver analysis and data sources
A well-founded Cost driver analysis Identifies the main factors influencing overall costs. Internal experience, manufacturer information, industry benchmarks and external studies are used as a basis for data. Die Activity-based costing supports the precise allocation of indirect costs.
Valuation procedure and discounting
Future costs are discounted at the time of consideration using present value methods. Different interest rates are used, depending on the risk class and corporate strategy. Sensitivity analyses check the robustness of the results when assumptions change.
Key figures for managing life cycle costing
Effective indicators make it possible to measure and control life cycle costing and to evaluate its effectiveness in procurement management.
Cost structure figures
The distribution of costs over the various life cycle phases provides information about optimization potential:
- Acquisition cost share: ratio of purchase price to total life cycle costs
- Operating cost ratio: share of running costs in total costs
- Maintenance intensity: maintenance costs per unit of use or period
Forecast quality and variance analysis
The quality of life cycle costing is measured by comparing forecasts and actual costs. Important key figures include the average forecast variance, the hit rate for critical cost drivers and the improvement of forecast quality over time. These metrics support the continuous refinement of Cost-benefit analysis.
Economic and ROI figures
The ROI in purchasing Life cycle costing measures saved costs in relation to the analysis effort. Other relevant indicators include the payback period of investments, the net present value (NPV) and the internal rate of return (IRR) of various procurement alternatives.
Risks, dependencies and countermeasures
The application of life cycle costing entails various risks and challenges that can be minimized by taking appropriate measures.
Data quality and forecast uncertainty
Incomplete or inaccurate data leads to incorrect calculations and sub-optimal decisions. Historical comparative values are often missing, particularly when it comes to innovative technologies. Countermeasures include the establishment of standardized data collection processes, regular validation of assumptions and the development of a company-wide cost database.
Complexity and resource expenditure
The comprehensive analysis of all life cycle phases requires considerable human and time resources. The risk of over-analysis can lead to delays in decision-making. Risk-appropriate detailing, the use of standard models and a focus on key cost drivers reduce costs while maintaining the same level of significance.
Organizational resistance and acceptance
The shift from traditional procurement practices to life-cycle-oriented approaches is often met with internal resistance. Short-term budget pressure and a lack of understanding of long-term cost benefits make implementation difficult. Training, pilot projects, and integration into Purchasing controlling promote organizational acceptance.
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practical example
A mechanical engineering company is faced with a decision between two industrial robots: Model A costs 80,000 euros, model B 120,000 euros. Life cycle costing over 10 years shows: Model A causes 15,000 euros in energy costs and 8,000 euros in maintenance costs annually, while model B requires only 9,000 euros in energy and 4,000 euros in maintenance costs. The total life cycle costs for model A amount to 310,000 euros, for model B 250,000 euros. Despite higher purchase costs, Model B is 60,000 euros cheaper.
- Systematic recording of all cost categories over the useful life
- Taking energy efficiency and maintenance vulnerability into account
- Well-founded basis for decision-making beyond the purchase price
Trends & developments in life cycle costing
Life cycle costing is constantly evolving, driven by technological innovations, sustainability requirements and new analysis options.
Digitalization and AI-powered forecasting
Artificial intelligence is revolutionizing life cycle costing through more precise predictive models and automated data analysis. Machine learning algorithms recognize cost patterns and continuously improve forecasting quality. Predictive analytics makes it possible to identify maintenance requirements and failure risks at an early stage and to budgeting to include.
Sustainability integration and ESG criteria
Environmental, social and governance (ESG) aspects are increasingly being integrated into life cycle costing. Carbon footprint, recyclability and social impact receive monetary assessments. This expanded approach supports sustainable procurement strategies and meets regulatory requirements.
Real-Time Monitoring and IoT Integration
Internet of Things technologies enable continuous monitoring of systems and products. Sensor data provides real-time information on consumption, wear and performance. This data flows directly into life cycle costing and improves the accuracy of Cost-benefit analysis significantly.
conclusion
Life cycle costing is an indispensable tool for strategic procurement decisions that go beyond the pure purchase price. It enables objective supplier comparisons and uncovers hidden cost drivers. Despite methodological challenges and forecast uncertainties, the benefits clearly outweigh, particularly with capital-intensive investments. The integration of digital technologies and sustainability criteria will further strengthen the importance of this method.
FAQ
How does life cycle costing differ from total cost of ownership?
Life cycle costing is a comprehensive cost accounting process, while total cost of ownership is a specific concept for recording all ownership costs. Life cycle costing can include various valuation approaches; TCO focuses primarily on total ownership costs from a user's perspective.
What data is needed for a meaningful analysis?
Purchase prices, operating costs (energy, personnel, consumables), maintenance and repair costs, downtime, spare parts prices, disposal costs and technical specifications such as durability and performance parameters are required. Historical data from similar systems significantly improve forecasting quality.
How are uncertainties in long-term forecasting dealt with?
Sensitivity analyses examine the effects of changed assumptions on the result. Scenario analyses look at various development paths, while Monte Carlo simulations use probability distributions for critical parameters. Regular updates of forecasts reduce uncertainty over time.
What organizational requirements are required?
Successful implementation requires interdisciplinary teams from purchasing, engineering and controlling, standardized evaluation processes, a central cost database and appropriate IT systems. Employee training and integration into existing procurement processes are just as important as the management commitment to long-term cost optimization.
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