What is Life Cycle Costing?
Life cycle costing is a management accounting technique that captures all costs of a product or asset across its full lifespan — research and development, design, production, marketing, operation, support, and end-of-life disposal — to support better long-term decisions.
How It Works
- Define the product or asset’s life cycle phases.
- Estimate costs for each phase, including hidden and disposal costs.
- Discount future costs to present value where horizons are long.
- Compare the total life cycle cost across alternative designs or vendors.
- Update the model as actual costs come in and feed lessons into the next design.
Saudi Context
Saudi Vision 2030 infrastructure projects and large industrial procurements increasingly require life cycle cost analysis as part of public tender evaluation. The methodology aligns with the green building and energy efficiency targets set by national programs.
Example
A chiller costs SAR 200,000 to buy and SAR 25,000/year to operate for 20 years. A more expensive SAR 260,000 chiller costs SAR 18,000/year to operate. Over 20 years it saves SAR 80,000 net of the higher purchase price.