PRODUCT LIFE CYCLE COST

MANAGEMENT
GROUP MEMBERS
Abhirup

Manish

Ubale

02

Jadhav

23

Mansi

Kumar

25

Sushil

Padhi

51

INTRODUCTION
Product life cycle involves multiple stages
Objective of product life cycle cost management
Manufacturers costs include the costs of activities

carried out
User costs
Society costs

IMPORTANCE OF AN ANALYSIS OF PRODUCT LIFE CYCLE

COST

Important part of product life cycle management.

Product idea stage to termination of its life cycle
Product costs throughout the various stages of its life

span
Incorporating life cycle costs
Product life cycle cost analysis is always needed
System development parameter

Calculation of product life cycle costs

Step 1: Determine time for each cost element
Step 2: Estimate value of each cost element
Step 3: Calculate Net Present Value of each element, for

every year (over its time period)

Step 4: Calculate LCC by adding all cost element, at every

year

Step 5: Analyze the results.

Step 1: Determine time for each cost element

Determination of life cycle of the product (i.e. equipment, in this case).
This Life cycle is not similar to conventional concept of Product Life

Cycle.
Conventional concept of Product Life Cycle implies to the time span
based on demand of the product in the market, starting from launch of
the product up to the time when company withdraw the product from
the market. That is purely a marketing concept.
In LCC analysis of an equipment, life cycle means the life of the product
that is installed in the plant, i.e. productive life time of the product.

Contd
The product supplier provides the life cycle depending on design

calculation and experience.

Based on suppliers data, customer decides the Life Cycle, i.e. how long
he/ she wants to use the machine. Customer considers the effect of
available maintenance facility, technological obsolescence and
economic uncertainty factor, also.
After that, company decides the time span for each component.
Example, say, a company decides that total life cycle of the product will
be 10 years from the allocation the fund, among which first one year
will be initial cost zone and remaining 9 years will be under operation
and maintenance cost zone.

Step 2: Estimate value of each cost element

Estimate monetary value for each cost element.
This estimated value will be incurred in every year. This

value is basically future income at each year, which is

estimated.
To estimate the value, various source can be used; e.g.
calculation based on facts and experience, MIS report for
similar existing machines, etc.

Step 3: Calculate Net Present Value of each

element, for every year
Money has a time value.
The present value of future income or future cost can be calculated by

using discounting factor and inflation factor.

Discount factor
The discount rate is an interest rate, a central bank charges depository
institutions that borrow reserves from it.
For example, let's say Mr. Ram expects Rs. 1,000 in one year's time. To
determine the present value of this Rs. 1,000 Ram would need to
discount it by a particular rate of interest (often the risk-free rate but
not always). Assuming a discount rate of 10%, the Rs. 1,000 in a year's
time would be equivalent of Rs. 909.09 to Ram today (i.e. 1000/
[1+0.10]).

Contd
Inflation factor
The inflation rate is the percentage by which prices of goods and services
rise beyond their average levels. It is the rate by which the purchasing
power of the people in a particular geography has declined in a specified
period.
Formula for Net Present Value (NPV)
C (1+i/100) (n-1)
PV= ----------------------(1+d/100) n
where,
C = any cost element at nth year
I = inflation rate
d = discount rate/ interest rate

Step 4: Calculate LCC by adding all cost

element, at every year
PVs of each cost elements is calculated for an equipment (at

every year).
PVs of each cost element in a year are added.
The process is done for every year over the life cycle, i.e.

LCC is calculated for every year.

Step 5: Analyze the results.

The datas collected from LCC are analyzed.
If one product has to be selected among multiple equipments, then LCC

is calculated for every product.

Datas for every product are analyzed, and the lowest LCC option

become preferred.
But lowest LCC option may not necessarily be implemented when other

considerations such as risk, available budgets, political and

environmental concerns are taken into account.

METHODS OF PRODUCT LIFE CYCLE

COST ESTIMATION
Intuitive methods
Analogue methods
Parametric methods
Analytical methods

CONCLUSIONS
Lack of motivation
Management problems
Implementation of the life cycle costing methodology
On the basis of factors and methods analysis for calculating life-cycle

costs of products

the length of product life cycle

the assessment of the sale volume of the product throughout the life cycle
the expected development of price
the assessment of the total costs associated with the product

THANK YOU