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Capital investment in assets without planning for “Life Cycle Costs”

Companies always put a great deal of strategic planning into capital asset planning, but how much effort goes into planning the associated revenue life cycle costs. The maintenance cost alone will usually create a significant annual expense, and this is quite often only part of the life cycle cost.

Life cycle costs and revenue budgets are always the first to be challenged, when a company has to apply cost reduction strategies and expenditure controls. All too often a company’s extensive capital strategy will give rise to committing significant revenue expense, causing business funding problems or not getting the full benefit from an investment due to limited funding.

When companies plan their capital investment strategies a critical part of this has to include life cycle revenue cost. Therefore while capital investment strategies are always planned over multiple years, it is essential that this investment reflects the ability for revenue budgets to support it.

In summary business processes must be embedded to ensure that capital investment planning includes the year on year revenue costs associated. This will mean a business can plan their budgets with confidence based on a clear vision of all forecast costs.