Lifecycle Cost Example
A practical worked example for procurement teams. Replace the sample numbers with your own project or supplier data before using the result in an approval file.
Visual example: file-note structure
Use the visual flow as a checklist before copying the wording into an approval note.
Situation
A buyer is evaluating two HVAC pump offers for a project package. Supplier A has the lower purchase price and looks attractive in the commercial comparison. Supplier B is $15,000 higher at award stage, but the technical team reports better expected reliability, lower maintenance cost, and faster service response.
The procurement question is not "which quote is cheaper today?" The question is which option is expected to cost less during the useful life of the asset. This is where lifecycle cost gives the buyer a cleaner approval file than a basic price comparison.
Inputs
| Input | Supplier A | Supplier B |
|---|---|---|
| Purchase price | $80,000 | $95,000 |
| Annual maintenance | $6,000 | $3,000 |
| Expected downtime | 4 hours/month | 0.5 hours/month |
| Downtime cost | $500/hour | $500/hour |
| Ownership period | 5 years | 5 years |
| Residual value | $0 | $0 |
Calculation
Supplier A downtime cost is 4 hours x 12 months x $500 x 5 years = $120,000. Maintenance is $6,000 x 5 years = $30,000. Total estimated ownership cost is $80,000 + $30,000 + $120,000 = $230,000.
Supplier B downtime cost is 0.5 hours x 12 months x $500 x 5 years = $15,000. Maintenance is $3,000 x 5 years = $15,000. Total estimated ownership cost is $95,000 + $15,000 + $15,000 = $125,000.
Supplier B is $15,000 more expensive at purchase stage but $105,000 lower over the five-year ownership period using these assumptions.
Decision
Recommend Supplier B if the maintenance and downtime assumptions are supported by technical evidence. The award should be positioned as a lower lifecycle-cost decision, not as an exception to buy a more expensive supplier.
If management chooses Supplier A because the capital budget is fixed, procurement should record the accepted risk: higher expected maintenance, higher downtime exposure, and possible future operating-cost impact.
Approval note wording
Suggested wording: Although Supplier B is $15,000 higher at purchase stage, the five-year lifecycle cost is lower after expected maintenance and downtime are included. Supplier B is recommended because the forecast ownership cost is approximately $125,000 compared with $230,000 for Supplier A, subject to technical confirmation of the downtime and maintenance assumptions.
How this would sit in an approval file
In a real approval file, the lifecycle cost comparison should be placed next to the commercial comparison sheet, not hidden as a separate technical note. The buyer should show the purchase price, expected maintenance, operating cost, downtime exposure, warranty difference, residual value, and total ownership cost over the evaluation period. This helps the approver understand why a higher initial quote can still be the better procurement decision.
The strongest file note explains the assumptions behind the numbers. State the operating hours, maintenance frequency, downtime cost basis, expected life, and whether values came from supplier documents, internal maintenance history, or engineering estimates. If the assumptions are uncertain, mark them clearly rather than presenting the result as exact.
Common mistakes in this situation
- Choosing the lowest purchase price while ignoring service and spare-parts cost.
- Using supplier operating-cost claims without checking them against internal usage.
- Forgetting downtime impact when equipment is project-critical.
- Mixing different warranty periods without adjusting the comparison.
Manager review wording: Procurement recommends evaluating the option on total ownership cost because the lowest purchase price does not reflect maintenance, downtime, and support exposure over the asset life.
Evidence to attach
- Supplier maintenance schedule and warranty terms.
- Technical confirmation of expected downtime or reliability difference.
- Service response commitment or spare-parts support evidence.
- Completed lifecycle cost calculation or printed tool output.
- Commercial comparison showing purchase price difference.
Open Lifecycle Cost Calculator Download lifecycle cost template