How can life-cycle costing (LCC) and total cost of ownership (TCO) help optimizing a system?

Life-cycle costing (LCC) is a concept which objectively compares the cost-benefit ratio of investment opportunities over their entire technical or economic lifetime, even if they have differing cash flow rhythms. An LCC analysis offers a well-informed response to the fundamental question: which projects are likely to be the most profitable over the longer term? [ECI 2015

Total cost of ownership (TCO) is a concept taken from the business sector, based on life-cycle costing. It takes a more pragmatic approach by including only those cost values considered to be sufficiently significant, which involves a certain amount of subjectivity on the part of the user. [Ecoinstitut 2017]

TCO and LCC analyses are natural allies of energy efficiency, since many energy efficiency improvement measures require an initial investment which is paid back in energy savings in subsequent years. LCC analysis demonstrates how such measures can be more economically advantageous despite higher upfront costs.

Though TCO and LCC are in widespread use as decision-making tools, their use is still far from systematic. A major barrier is the fact that they require reasonably accurate predictions of values such as component life, maintenance costs, frequency of repair and replacement, and electricity tariff. It can be helpful to have access to calculation models and databases with benchmarks for these values per sector and per geography. Data in the public domain is often lacking, incomplete, or presented in formats that make comparison and extrapolation difficult [IISD 2009, p.7].


LCC demonstrates how energy efficiency measures can be more economically advantageous despite higher upfront costs.