What is life cycle cost analysis?

Life cycle cost analysis adds up what a machine costs over its whole life: purchase, installation, energy, consumables, maintenance, repairs, the cost of down time, and the disposal or resale value. It is used to compare options on the cost of owning them, not only the price.

How do MTBF and MTTR affect life cycle cost?

MTBF sets how often a machine fails and MTTR how long each failure keeps it down. Operating hours divided by MTBF gives failures a year; failures times MTTR gives hours down. Each failure then costs repair labour, spares and lost output.

What discount rate should I use?

Use the rate your finance team uses for investment decisions, often the company's cost of capital or a hurdle rate. A higher rate favours the option with lower up-front cost. Try two rates to see whether the ranking changes.

What is equivalent annual cost?

Equivalent annual cost is the net present value spread as an even yearly amount over the analysis period. It lets you compare machines with different lives on the same footing: the lower the equivalent annual cost, the cheaper to own.

How is this different from a payback or ROI calculation?

Payback and ROI look at the return on an investment. Life cycle cost compares the total cost of owning alternatives that do the same job. It is used when the choice is which machine to buy, not whether the project pays back.

Free template

Updated October 25, 2026

Life cycle cost analysis template

A life cycle cost analysis adds up everything a machine costs over its life, not just the price on the quote: installation, energy, consumables, tooling, planned maintenance, repairs, the cost of the production lost when it breaks down, and what it is worth at the end. This template compares up to three options over ten years. Reliability drives the repair and downtime lines: from each option's MTBF and MTTR it works out failures and hours down a year and what they cost. The Excel version builds a year-by-year table with discounting, then gives the total cost, net present value, rank, equivalent annual cost, cost per unit produced, the break-even year and a check on the energy price. The PDF has the input form, the blank ten-year table, the arithmetic and a worked example of two case sealers.

Free to use: print it, copy it and edit it for your team. Enter your name and work email once to download.

Page 1 of the life cycle cost analysis template — Inputs for three optionsMTBF and MTTR driven repair costTen-year table with discountingNPV and equivalent annual costCost per unit and break-even yearEnergy price check

Filled-in Life cycle cost analysis template: two made-up case sealers over ten years — The same sheet filled in with the worked example (page 4 of the PDF, illustrative numbers). Open full size (opens the picture in a new tab)

When to use it

When to use a life cycle cost analysis

When choosing between machines of different prices and different reliability, energy use or upkeep.
Before a capital request, to show the cheapest option to buy is or is not the cheapest to own.
When designing a new line or specifying new equipment, so that maintenance and reliability requirements are priced in.
To test how sensitive a choice is to the energy price, the downtime cost or an uncertain MTBF.
Not for a quick repair-or-replace decision on one old machine. For that, use the repair-or-replace calculator; this compares options from new.

How to fill it in

1
Set the common assumptions
Enter the discount rate, a yearly cost increase, the operating hours a year, the labour rate, the cost of an hour of down time and the energy price. They are the same for every option.
2
Fill in each option
Purchase price, installation and training, residual value, power, consumables, tooling, planned maintenance, output per hour, and the MTBF, MTTR, repair labour and spares per failure.
3
Check the worked-out lines
The sheet turns MTBF and operating hours into failures a year, MTTR into hours down, and prices the repairs and the lost production. Look at them: a failure rate that looks odd means an input is wrong.
4
Read the ten-year table
Year 0 holds the capital cost, years 1 to 10 the running cost, rising each year, with the residual value taken off at the end. Each year is discounted to its present value.
5
Compare the options
Rank them by present value and look at the extra cost against the cheapest, the equivalent annual cost, the cost per unit and the year the dearer machine's running total drops below the other's.
6
Test the weak inputs
Change the energy price and the uncertain inputs, especially MTBF, and watch the ranking. If it holds, the choice is clear. If not, get better data before you decide.

A filled-in example

Illustrative, not a benchmark

Two invented case sealers are compared over ten years at 4,000 operating hours a year, an 8% discount rate and costs rising 3% a year.

Sealer A costs $37,000 less to buy, but its MTBF is 180 run hours against 600 for sealer B.
So A fails about 22 times a year with about 67 hours of down time, while B fails about 7 times with 13 hours down.
Over ten years A has the higher running cost in every year; B's running total drops below A's in year 3.
In present value A costs about 23% more than B. Moving the energy price 20% either way does not change the ranking.

The cheaper machine to buy is the dearer to own. The answer rests on the MTBF, so the next step is to ask the supplier for evidence of 600 run hours, such as reference sites, before trusting it.

Common mistakes

Comparing prices only
The purchase price is often a minor part of the ten-year cost. A machine that is cheaper to buy but fails more often can cost much more to own.
Trusting a supplier's MTBF
A quoted figure is a claim. Ask for reference sites, test data or your own history on a similar machine, and run the comparison at a lower figure too.
Leaving out the cost of down time
Repair cost alone understates failure. Put even a rough price on an hour of lost output and idle labour, and include it.
Ignoring the time value of money
A dollar spent in year 9 is worth less than a dollar spent now. Discounting is what makes early capital and late running costs comparable.
Hiding the assumptions
The result depends on the inputs. Show the table, note where each number came from and test the weakest ones, so the decision can be challenged.

Download the template

Free to use: print it, copy it and edit it for your team. Enter your name and work email once to download.

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In LeanSuite a CapEx request runs through phases you define, with a form in each phase and approvals by role and by amount, and each project records capital cost, hard and soft savings and cost avoidance.

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