Life Cycle Costing
Life Cycle Costing is a type of price/performance evaluation that involves a broad-based evaluation of operating, maintenance, financing, other ownership and usage costs, and resale or residual value in addition to acquisition price in making a contract award.
Life Cycle Costing adds a new dimension to purchasing capital goods. This concept not only retains, but actually strengthens the competitive bidding low cost philosophy essential to any government agency. With Life Cycle Costing all major costs are established in advance. All of the owning and operating expenses throughout a machine's working life are considered, not just the initial purchase price. When the true costs are analyzed, the results can be surprising. Apparent savings can turn out not to be savings at all!
Taxpayers expect to get the most value for the money with your equipment purchases, and that can't be done without taking into account the total cost of operating the machine. Agencies are being asked to do more with less, and the workload doesn't stop just because budgets are tight. No one wants to have unexpected repairs and maintenance costs, or unforeseen downtime eating away at the operating budget. Used correctly, Life Cycle Costing (LCC) can save guesswork in budgeting and will save worry about the costs of machine repairs, downtime, and lack of availability. It can also protect you against a dealer who won't or can't stand behind the machines they sell.
Life Cycle Costing is not a new concept for purchasing capital goods, and has been endorsed and its use encouraged by several governmental associations including:
National Institute of Governmental Purchasing (NIGP),
National Association of State Procurement Officials (NASPO),
American Bar Association (ABA),
and National Association of Fleet Administrators (NAFA).
More agencies are using and applying LCC in their bidding process all the time. Why not try it with your next purchase? It's a surprisingly simple process.
1. Begin with the make and model of the equipment and the selling price.
2. Subtract the trade-in amount the dealer will allow.
3. Now you have the initial purchase price.
4. Next, include a residual/salvage value for the equipment.
5. Add the scheduled maintenance costs over the same period (See the Scheduled Maintenance Calculation Forms available on Govbidspec.com).
6. Add the repair costs over the life of the equipment.
7. Then add the extended warranty that will cover against all defective parts and workmanship.
8. Next, include a provision for availability that will guarantee the in-service time of the machine.
9. Finally, your total life cycle cost for the equipment is established.
You can also get three guarantees: repair costs, maintenance costs and resale value (contact Louisiana Cat for details). Using this process can help you set budgets, predict expenses, establish an equitable process for selecting equipment and, of course, save money. And you have the security of knowing there will be no surprises.
For more information on Life Cycle Costing and its advantages Click Here. Or for more information about Governmental services, email us at info@louisianacat.com
