Life Cycle Costing for Sustainability

Introduction

The businesses are the catalyst in the development of globalization and some problematic impacts of their operations on the environment become an international issue. The largest corporate initiative in the world, the United Nations Global Compact determined ten principles for the companies that setting core values in the four different basic areas affect the human life. These principles ask the companies to substantially respect human rights, labor standards, the environment and anti- corruption. The principles 7-9 are related to environment area and call the companies; to be precautionary against the environmental challenges, undertaking initiatives to promote greater environmental responsibility and to be supportive in the development and diffusion of environment friendly technologies (Rasche & Kell, 2010). Existence of the Global Compact acknowledges that environmental problems arose from the businesses’ operations have rising importance and cannot be left local regulations and regulators or initiatives in the solution of the problems which affect the humanity. The businesses are the economic units to produce and sell their products to meet the needs of the society and to survive in future by earning profit. While the environmental problems, particularly pollution, may occur in the production phases, inefficient use of products by consumers or dispose of products may cause some other environmental problems too.

Especially to prevent side effects in product disposals, some businesses have begun to undertake more responsibility within the corporate sustainability and/or corporate social responsibility approaches. Besides estimating the cost of production, they started considering the cost of disposal before the sale of the products. This contemporary costing system, which is named life cycle costing (LLC) is used to achieve this objective. There, LCC includes disposal cost in the determination of total product costs. Life cycle costing considers both production costs and user costs. User costs are also known as transaction, maintenance, and disposal costs which they are closely involve in sustainability and waste management. Therefore, one can simply assert that LCC has a broader approach providing full cost in the calculation of the costs, compared to other conventional costing systems.

This study primarily focuses on revealing the fundamentals of the LCC and its relations with waste management, considering the sustainability perspective. In order to fulfill these objectives, the organization of the paper is as follows. The main characteristics and basic definitions relating to life cycle costing are presented in the background. After the background of LCC, the implementation of life cycle costing and the comparison of LCC with other conventional costing systems are discussed. In following, the links among life cycle costing, waste management, and sustainability will be analyzed. An overall review will be done in the conclusion.