Last Updated on 12 September 2023
“Life Cycle Cost Analysis” or simply “Life Cycle Costing” is a financial tool helping businesses understand the total cost of owning a product throughout its life cycle. This tool considers all costs from acquisition and installation, through operation and maintenance, and finally, disposal.
Life Cycle Cost analysis is integral to a Six Sigma Ninja’s financial skillset because it helps us evaluate the total economic impact of a product or process, pushing us beyond the upfront purchase price or project cost.
When do you use it?
In Lean Six Sigma, the concept of life cycle cost is generally considered as a part of the Define and Control phases of the DMAIC (Define, Measure, Analyze, Improve, Control) methodology.
During the Define phase, the life cycle cost is used to outline the total costs throughout an item’s life cycle for the purpose of decision making. The scope, scale, and financial impact of the project are evaluated, which includes considering life cycle cost as part of the overall project and product cost. Understanding the life cycle cost is critical in setting appropriate improvement and cost reduction targets.
Furthermore, in the Control phase, life cycle cost considerations are continuously evaluated and monitored to ensure that cost-saving measures are sustainable in the long run. Here, it’s essential to ensure that the improvements made during the Improve phase of DMAIC do not inadvertently increase the life cycle cost.
To optimize the life cycle cost and enhance customer value, Lean Six Sigma makes use of a host of tools such as process mapping, waste elimination, value stream mapping, and others. Through these, organizations aim to increase efficiency and reduce waste, thereby improving overall life cycle cost.
Applying Life Cycle Cost Analysis in Six Sigma
Applying Life Cycle Cost Analysis to your Six Sigma projects enables you to:
- Inform Investment Decisions: If you’re developing a new product or process, assessing the Life Cycle Cost can provide a more comprehensive view of potential returns on your investment.
- Optimize Total Costs: By understanding the different cost drivers across the life cycle, you can identify opportunities to optimize and save costs.
- Improve Sustainability: By considering disposal and afterlife costs, you can make decisions that not only minimize the financial outlay but also lower your environmental impact.
Life Cycle Cost Analysis: A Staple in Six Sigma Success
As Six Sigma Ninjas, our objective goes beyond improving process efficiencies. Our ultimate goal is to create value for the entire organization. A tool like Life Cycle Cost Analysis allows us to drill down into costs that might otherwise be overlooked in standard financial evaluations.
Remember, every tool in our Six Sigma toolbox brings us closer to that coveted Black Belt status. And mastering Life Cycle Cost Analysis will undoubtedly set you apart as a financially savvy Six Sigma Ninja.
Leave a Reply