Life-cycle cost

The cheapest option to build is not always the cheapest to own. Life-cycle cost adds up all the costs of an asset over its life: initial construction, operation, energy, maintenance, repair, replacement of parts and, at the end, disposal, less any salvage value. Comparing options on this basis avoids choices that save money today and cost much more later.

Because money now is worth more than money later, future costs are converted to present value with a discount rate. A cost C in year n has present value C / (1 + i)^n. A uniform annual cost A over n years has present value A × [1 − (1 + i)^−n] / i, the uniform-series present worth factor. The option with the lower total present value is cheaper over its life.

Typical applications include choosing between flexible and rigid pavements, between pipe materials, between plain and corrosion-protected reinforcement in harsh exposure, and between building services with different energy use. The answer can depend strongly on the discount rate and the analysis period, so sensitivity tests are part of any honest study.

Life-cycle costing works best with good data on maintenance and service life, which asset management systems build over time. It is also the basis for whole-life value in public procurement.