Life-cycle cost analysis of the labor factor

Abstract

A central part of the design of a production system is to methodically weigh the production factors, labor and capital and integrate them into a well-functioning unit. The life-cycle costing technique is primarily used when quantifying the costs related to a production system from the perspective of the life cycle of investments in production equipment or product development. The purpose of this paper is to widen the field of application for life-cycle costing and carry through an analysis of investments done when raising the production factor labor in a Swedish engineering company. The analysis covers the costs for an employee over the whole employment cycle — from the recruitment until retirement. The costs for labor are suggested to be graphed in a way similar to the costs over the life cycle for production equipment. The costs are divided into three basic categories: 1. (1) Employment costs: consisting of costs for recruiting, introduction and training of new employees — to compare with acquisition costs such as projecting (planning), installation and start-up of new equipment. 2. (2) Operation costs: consisting of wages, and labor related overhead — to compare with depreciation, maintenance and repairs. 3. (3) Work environmental costs: consisting of additional costs for absenteeism, rehabilitation and pensions — to compare with costs for increased maintenance and repairs and finally to scrap the equipment.