This paper aims to discuss one of the recommended strategies to quantify the impact a product has on the environment, and this is life cycle costing or LCC. It provides an introduction on the concept of LCC. It describes various approaches to LCC and how these approaches contribute to getting an understanding on how a certain product affects the environment. Lastly, it includes several recommended improvements on life cycle methods.
The life cycle cost of a certain asset is defined as the “total cost throughout the life” of the asset, including the cost to plan, to design or to acquire (New South Wales Treasury, 2004), to operate, to maintain, to convert and/or to decommission an asset, particularly a fixed asset (Barringer, 2003). LCC techniques are used for various purposes, from the acquisition of the asset to deciding when to retire the aging asset (p. 30, Dhillon, 1989).
LCC is used across several disciplines such as accounting, finance, engineering and statistics (p. 35, Dhillon, 1989). It offers a lot of advantages for the entity that applies this concept. It enables the entity to choose “the most beneficial procurement strategy”, offers incentives to suppliers and establish long – term mutual beneficial relationships with them, choosing the optimal solutions for the entity, formulating effective (and realistic) budgets and, generally, effectively controlling the project and/or the acquisition of the assets (p. 30, Dhillon, 1989).
Although the LCC is a methodology to gather the costs for further analysis and monitoring, it is inevitable that LCC will also be looked at as a possible means to solve the environmental issues faced by the world today. According to Hunkeler and Rebitzer (as quoted by Guidice, La Rosa and Risitano, 2006), LCC can play an active and important role in addressing environmental issues and concerns as “it acts as a primary link between environmental demands and the production