Life-cycle cost (LCC) comparator
You compare two machines by what they cost over their whole service life, not just by the purchase price.
Life-cycle cost
271,433
The purchase is 18% of the total
Life-cycle cost
181,625
The purchase is 50% of the total
Over 10 years, Efficient machine works out 89,808 cheaper than Cheap machine in total cost. Careful: the cheapest option to buy (Cheap machine) is not the cheapest to own. The preloaded values are made up for illustration. Future costs are discounted to present value with the rate; with a rate of 0 it is a simple sum.
How it works
You compare two machines with the same assumptions for service life and discount rate. For each one you enter the purchase and installation price, the annual operating and maintenance cost, the annual loss from downtime and the residual value.
- LCC = acquisition price + annual costs discounted to present value − discounted residual value.
- Each annual cost is divided by (1 + rate) raised to the year number; with a 0% rate it is a simple sum.
- The annual cost is the sum of operation, maintenance and downtime losses, and it is assumed to be the same every year.
At the end it tells you which one is cheaper, by how much, and what share of the total cost is the purchase. The definition of what goes into life-cycle cost comes from Etchegno's thesis; discounting to present value is standard engineering-economics practice, which the Basque Government guide uses in its bus example. Downtime losses and residual value are usually the most uncertain figures and the ones that weigh the most: try variants.
Sources
These are the ones from the article where the theory behind this tool is developed.
What goes into the LCC and why are future costs discounted? It is in the article Life-cycle cost (LCC). The equivalent spreadsheet is among the Excel spreadsheets.