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Project life cycle costing

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Project life cycle costing

  1. 1. PROJECT LIFE CYCLE COSTING Meaning Definition Categories of project life cycle Optimization of project life cycle
  2. 2. Meaning It is a technique which takes account of the total cost owing a physical asset or making a product during its economic life.
  3. 3. Definition The term project life cycle costing has been defined as following “It includes the cost associated with acquiring , using , caring for and disposing of physical asset including studies , research design ,development, production , maintenance , replacement and disposed as well as support training and operating cost generated by the acquisition ,use ,maintenance and replacement of permament physical asset ‘’
  4. 4. of project life cycle cost Initial cost Operating cost Disposal cost
  5. 5. Initial cost The cost which incurred initially for a particular project .i.e. if asset is purchased by a supplier then the following initial costs are : (i) - acquisition - installation - commission - obtaining space
  6. 6. (ii) - recruitment and training of operation staff and maintenance engineers (iii) - purchase of ancillary maintenance equipments
  7. 7. Operating cost The operating cost for an item of capital equipment includes not just operator cost and also maintenance cost to support services such as : - material handling - quality control - continued training recruitment for new staff and so on .
  8. 8. Disposal costing Disposal costing is a significant for a fixed asset because the asset must be demolished and removed and the site made good for other use . These cost may be upset by the disposal value of the asset.
  9. 9. Example ABC LTD purchased a machine for Rs/- 2000 on 1st January 2001 which had a useful life of 5 years and an estimated residual value of Rs/-500. The machine was being depreciated on straight line basis. However, ABC LTD decided to sell the asset on1 January 2003 for Rs/-1500 in order to raise cash for the purchase of a new machine.
  10. 10. Optimization of project life cycle cost Optimization of project life cycle cost nothing but optimization of costs , situation , opportunity or resources . It is for we manage our times so that we optimize our productivity .This is through the following stages .
  11. 11. Optimization process Optimization process Defining planning execution closing
  12. 12. Defining defining includes the following : - Goals - Tasks -Objectives - Responsibility
  13. 13. Planning Planning includes the following : - Schedules - Budget - Resources - Risk
  14. 14. Execution The execution of project includes the following : - Status report - Changes - Quality - Forecast
  15. 15. Closing That is communicating the closure of project to all stake holders .
  16. 16. Graphically L E V E L (of) E F F O R T START TIME END Defining Planning End Execution
  17. 17. Illustration In organic chemical limited is about to replace its old boiler equipment either by a coal fired system (or) other by the oil fired system . Financial cost 15% a year and other estimated costs are as followes : If the company expected new boiler system to cost at least 15 years of which system should be choose ? PARTICULARS COAL OIL Initial cost of boiler 70000 100000 Annual operating cost 60000 p.a 45000 p.a
  18. 18. By, SHASHIKUMARACHARI C V GFGC Vijayanagar, Bengaluru

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