CATEGORIES OF COSTS
Costs that must be considered depend to some extent upon the system or project analyzed,
but can generally be categorized as follows:
1. Initial costs
a. Item costs. These are costs to produce or construct the item.
b. Development costs. These are costs associated with conducting the value study, testing, building a prototype, designing, and constructing models.
c. Implementation costs. These are costs expected to occur after approval of the ideas, such as redesign, tooling, inspection, testing, contract administration, training, and documentation.
d. Miscellaneous costs. These costs depend on the item and include costs for owner-furnished equipment, financing, licenses and fees, and other one-time expenditures.
2. Annual recurring costs
a. Operation costs. These costs include estimated annual expenditures associated with the item such as for utilities, fuel, custodial care, insurance, taxes and other fees, and labor.
b. Maintenance costs. These costs include annual expenditures for scheduled upkeep and preventive maintenance to keep an item in operable condition.
c. Other recurring costs. These include costs for annual use of equipment associated with an item as well as annual support costs for management overhead.
3. Nonrecurring costs
a. Repair and replacement costs. These are costs estimated on the basis of predicted failure and replacement of major system components, predicted alteration costs for categories of space related to the frequency of moves, and capital improvements predicted necessary to bring systems up to current standards at given points in time. Each estimated cost is for a specific year in the future.
b. Salvage. Salvage value is often referred to as residual value. Salvage value is not really a cost, in that this factor is entered as a negative amount in the LCC calculation to reduce the LCC amount. Salvage value represents the remaining market value or use value of an item at the end of the selected LCC life span.