When to use it
Use it when a low purchase price can hide expensive operation or exit.
When to be cautious
Do not mix unequal service levels, price bases or evaluation horizons.
Apply it
PV of life-cycle cost = Σ costₜ / (1 + r)ᵗ
Use the same analysis horizon and discount-rate period. Include residual value as a negative cost; keep nominal and real bases consistent.
- Set a common required service and horizon.
- List costs by period, including transition and end-of-life effects.
- Discount consistently where timing matters and test uncertain drivers.
An example in practice
A cheaper system needs more administration and a costly data export at exit. Compare those costs with the purchase price before selecting it.
Source & credit
Standard estimating practice; the cited guide documents use rather than claiming invention.
GAO: Cost Estimating and Assessment Guide
This explanation and example are independently written. The source is a reading reference; linking it does not grant permission to reuse its text, figures or assessments.