The life-cycle cost of a product, asset, or project is the sum of all costs incurred over its full life — from initial concept and acquisition through operation, maintenance, and eventual disposal. It’s the engineer’s antidote to the trap of looking only at the purchase price.
A cheap machine with high running costs can easily lose to a more expensive machine that’s cheaper to run. The cheap car saves $5,000 at purchase but costs an extra $1,000/year in fuel for 10 years — you lose by $5,000 over the life. Life-cycle costing forces both numbers into the same comparison.
Life-cycle costs are conventionally split into two phases:
Acquisition phase: the period when you commit to the asset. Design, planning, purchase, installation, commissioning. Once the asset is in operation, the decisions made here are mostly locked in. The cumulative committed life-cycle cost (what you’ve decided to spend, even if not yet spent) rises steeply during this phase.
Operation phase: the period when the asset is in service. Energy, labour, materials, maintenance, parts, taxes, and eventually disposal or salvage. Cumulative incurred life-cycle cost grows steadily through this phase, while the committed cost from acquisition is mostly already locked in.
The two curves usually look like this conceptually: by the end of the acquisition phase, 70-90% of the total life-cycle cost has been committed (the design and purchase decisions determine most of the operating cost too), but only 5-15% has been spent. The remaining 85-95% gets spent during operation, but most of what gets spent then was already determined by design choices.
This is why design-phase decisions are disproportionately important: a few weeks of design thinking can lock in or eliminate years of operating cost. Once the asset is bought, you live with what design chose.
For the time-value-of-money formalism applied to life-cycle costs, see Present worth method and Equivalent annual cost. For the related concept of replacing assets near end-of-life, see Replacement decision and Economic life.