Development of Life Cycle Cost Model of Passenger Car

Life cycle costing is the process of economic analysis to assess total cost of ownership and preparation of LCC model to provide inputs in the decision making process. The decision to purchase is not only influenced by the product’s initial cost but also by the product’s expected operation and maintenance cost over its service life and disposal cost.
LCC model is a simplified representation of the real world as its extract each cost elements in each cost categories and in all phases through the cost breakdown structure then translates them into cost estimating relationships. A simple LCC model is an accounting structure that contains mathematical expressions for the estimation of cost associated in the LCC.
LCC model is the total cost in present value which includes the acquisition cost and DCF such as operation, maintenance and disposal cost. DCF provide net NPV of the future cash flows where NPV is used to determine the best choice because it factors in the time value of money.
In fact, one of the important outputs of LCC model is the identification of cost drivers by sensitivity analysis, meaning the cost that most contribute to the overall LCC. Thus, LCC model provide an objective way of selecting or purchasing new passenger car based on the total cost of ownership and lowest NPV value. Selection of new passenger car would also involve other subjective criteria such as status symbols and perception which is not covered in the model.
Consequential cost may incur and it is difficult to assess. However, it is possible to quantify. Due to this reason, LCC calculation might not match since it is influencing by random factors which cannot accurately modelled. Here are some of the most cited LCC limitations are; LCC is not an exact science, LCC outputs only estimates, and LCC estimates lack accuracy.