The adoption and benefits of life cycle costing

Abstract

Purpose Although life cycle costing (LCC) is well established in theory and practice, little is known about the conditions of its adoption and its impact on the achievement of cost-management goals. Therefore, this paper aims to analyze the adoption and benefits of LCC. Design/methodology/approach The analyses are based on questionnaires collected from a survey of German firms. Findings The results demonstrate that the extent of LCC adoption is positively associated with the extent of guarantee and warranty costs, voluntary upfront and follow-up costs for ecological sustainability and the extent of target costing adoption. In contrast, the extent of LCC adoption is negatively associated with the amount of precursors and/or intermediates that are purchased. The results also demonstrate that firms perceive LCC to be beneficial for various aspects of cost management. Firms report that the greatest benefit of LCC is related to the identification of cost drivers. Research limitations/implications This investigation provides a starting point for future studies of the conditions of LCC adoption and the benefits of LCC. This study is subject to limitations, particularly with respect to the operationalization of our independent variables, the number of contextual variables and the general limitations of survey research. Practical implications The results inform practitioners of the situations in which it is most appropriate to adopt LCC. In addition, this study identifies various cost-management goals that are supported by the use of LCC. Originality/value This study provides the first comprehensive analysis of the conditions of LCC adoption and advances the literature regarding the impact of LCC on the achievement of cost-management goals. Furthermore, this study provides a starting point for future research into the implementation of LCC and the effects of LCC on management accounting practices.

Life Cycle Costing : Supporting companies towards a circular economy

“…More specifically, through data displays that are widely disseminated, LCC results can concretize the lifecycle idea, enhance individuals' perception of the scope of company responsibility over the lifecycle, visualise the changing incentive structure in terms of costs and revenue and highlight the importance of services (Paper V). These findings are supported by the work of Knauer and Möslang (2018) who, based on a survey of German companies, found that companies have cognition related goals when adopting LCC such as increased cost awareness and transparency, and cost driver identification. Moreover, the companies perceived that they obtain many benefits from using LCC in relation to those goals (ibid.…”

“…Gluch et al (2018) discuss two such uses: to legitimize an alreadypreferred option and to facilitate a discussion about long-term issues such as renovation. Knauer and Möslang (2018) verified that companies have both cognitionrelated and result-oriented cost-management goals when using LCC. Facilitating discussions and improving cognition have similarities to the use presented in Chapter 5.4 of "understanding and overcoming challenges".…”

“…Other reasons for a lack of adoption or tailoring are a lack of expertise and data or the effort involved as well as a lack of demand by the customers (Higham, Fortune, & James, 2015). Knauer and Möslang (2018) found that companies were more likely to adopt LCC if they had responsibility for downstream costs, for example, warranties, or could significantly influence downstream costs through product design. Gluch et al (2018) suggested that the tailoring may happen because there is a conflict between the intended use of a methodology, that is, a detailed and fully accurate account, and the intended use in the company, which is to facilitate a conversation on long term effects or possibly even to legitimize a preferred choice.…”

“…The ultimate purpose is that uncertainty and risk can be managed and mitigated through LCM. Knauer and Möslang (2018) found that companies derive more cognitive benefits from LCC, including improving cost awareness and transparency, and especially, cost driver identification than beneficial results, for example, cost reduction or changed pricing.…”

“…This is not a novel use. For example, the application guide to lifecycle costing developed by IEC (2017) describes using LCC to identify cost hotspots or drivers that should be targeted for optimization, and Knauer and Möslang (2018) found that the greatest benefit of LCC is in identifying cost drivers and thus improvement potential within an offering's lifecycle. The novelty in this thesis lies in putting this use into the specific context of the selection of circular measures and providing input to the design of circular offerings.…”