Code of Practice for Life Cycle Costing

Life cycle costing is the discipline or process of collecting, interpreting and analysing data and applying quantitative tools and techniques to predict the future resources that will be required in any life cycle stage of a system of interest.

The life cycle costs which are the output of this process include not only the costs of the acquisition but also other costs that are logically attributed to the programme throughout its life. The concept of “total ownership” or “whole life” cost is related but broader in scope. Detailed cost related definitions can be found in the NATO RTO SAS-028 report [1]. When used as a key measure, it can reflect differences in alternative procurement options and support solutions expressed in monetary terms.

Simply put, life cycle costing is a powerful technique that supports the analytical processes by which managers can make the most cost-effective decisions on options presented to them at differing life cycle stages and at different levels of the life cycle cost estimate. Note however that life cycle cost is just one of many criteria (e.g. operational need, government constraints) that could influence an investment decision.

1.2 Use of Life Cycle Costing

The principles and practices of this booklet apply to systems of interest, including individual weapon systems, system of systems, and military and business software. Life cycle costing is not an exact science. A life cycle cost estimate does not provide the exact figure for the costs; it merely gives an insight into the major cost factors and it may also help to compare alternative solutions. It highlights the magnitude of the costs and identifies areas for potential cost savings as well as areas for technical and organisational improvements. Life cycle costing should not be considered as a one-off task but should be recognised as an ongoing activity throughout the project life cycle.