| A new realization is spreading through our materialistic | | | | society, where products are being bought purely by |
| world, a new concept is gaining recognition in the | | | | comparing prices, in the end, more money will have to |
| commercial field and also entered our private life. It is | | | | be spent as these may not last as long or when |
| based on the discovery that a newly bought product | | | | repairs set in. Do we remember our |
| does not stop costing after its purchase, but keeps | | | | grandparents’ solid oak furniture that have been |
| costing us throughout its life cycle. And, it is now | | | | passed down through generations? Rock-solid, they |
| realized, it is the total costs of a product, throughout its | | | | have outlived many fashion furniture that have been |
| life cycle that gives us the real costs! | | | | acquired for no other reason than being perceived as |
| It is therefore often the case that an item with a | | | | ‘cheap’ and subsequently had to be |
| cheaper purchase price but a high on-going cost factor | | | | replaced several times over. |
| turns out to be much more expensive than, say, an | | | | But times are changing and we become more and |
| product with a higher initial cost. Seemingly more | | | | more enlightened when investing in new items and |
| expensive at the moment of purchase, but with lower | | | | equipment. |
| maintenance costs throughout its life-cycle, it may well | | | | Accounting has also changed and new factors are |
| be a cheaper one! | | | | being considered when deriving a true cost factor of |
| The clearest case to demonstrate this may be a car, | | | | an item: Not only do we now state the purchase price, |
| purchased at a higher price, but with lower on-going | | | | but also incorporate a replacement value and disposal |
| running, maintenance and replacement costs it may | | | | cost before we are able to determine our total cost of |
| turn out to be the actually cheaper or cost effective | | | | a product. |
| vehicle than, say, a cheaper car purchased at the spur | | | | This is already law in an increasing number of countries |
| of the moment but with high on-going maintenance | | | | as the cost of disposing of material in a responsible |
| costs plus a petrol thirst to match. | | | | way is costly too and has to be incorporated already |
| In many hospitals and nursing homes the installation of | | | | in the cost price and subsequently in a purchase price. |
| a flooring with a polyurethene wear layer will reduce | | | | To derive at all these new cost factors may require |
| the cleaning costs by up to fifty percent. The initial | | | | some investigative work, however, there are now in |
| purchase of such a flooring may be dearer but, as a | | | | the professional field an increasingly number of |
| result of a decision in its favour, the cleaning costs in | | | | life-cycle-cost experts with all their facts already |
| these institutions may half. If a medium-size nursing | | | | recorded in their specialized software for instant |
| home has an annual cleaning bill of $ 200 000.--, the | | | | assistance. Sometimes they are called Logisticians or |
| saving is often more than $ 100 000.--, resulting in a | | | | have other specialized names and are already |
| saving of $ 1000 000.—within ten years. This | | | | indispensible in some industries. |
| amount thus saved may be used for healing people or | | | | Therefore, the total sum of a product’s cost |
| caring for them! | | | | factors, plus the on-going costs throughout a products |
| This principle of cost-effectiveness applies to every | | | | life-time, are the true expenses for the customer and |
| item, – the total cost throughout its life-cycle give | | | | when calculated that way, responsible accounting will |
| us the real or total costs. In our fast-living consumer | | | | ensure business success. |