The Possibilities of Life Cycle Costing in Outsourcing Decision Making

Abstract

The idea of outsourcing is to achieve the optimal performance within a company and a supply chain. Outsourcing decisions, therefore, require life cycle analysis of anticipated changes concerning all relevant costs, including indirect ones, to avoid undesired surprises. Life cycle costing (LCC) is an approach which aims at producing comprehensive cost information for decision makers by estimating the costs incurring in the future and by monitoring the costs during the life cycle. In the context of outsourcing, LCC can provide useful information for both customers and suppliers. The aim of this paper is to discuss the possibilities of life cycle costing in outsourcing decision making and companies ’ ability to accomplish comprehensive cost assessments on the basis of empirical evidence about the present practices of life cycle costing. The study indicates that decisions are rarely made within a long-term perspective and cost consciousness in companies is often quite poor. Because the field of life cycle costing is problematic for many reasons, its use has been limited on the practical level. However, LCC has good alignment with outsourcing objectives and it is a potential tool for outsourcing decision making.

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