May 31, 2010

Life Costing Cycle (Asset Management)

This is the aspect I chose for asset management, as I consider it one of the most important in an organisation when you are investing in new equipment.

This is a method designed to promote the most cost- effective selection of assets (tangible and intangible). It allocates the total costs of the system or equipment under study over its complete life cycle.

Many systems and equipments are selected on the basis of the initial acquisition cost and this is how most companies decide on investment; however, this should not be the key indicator to provide enough information to the decision-maker to justify the selection from various alternatives. LCC cycle costing is a technique for estimating the total cost to the organisation of a system or equipment. The result of an LCC analysis can be used to assist managers in the decision-making process where there are many options.

When we purchase equipment, we need to consider different factors, not only the acquisition cost, such as:

  • ·        The cost of site preparation
  • ·        Initial delivery and handling costs
  • ·        Installation costs
  • ·        Professional fees such as for architects and engineers
  • ·        The estimated cost of dismantling and removing the assets, restoring the site
  • ·        Costs of testing whether the asset is functioning properly

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