ABSTRACT
In traditional volume-based costing systems mostly utilizing volume related allocation bases costs are traced on the basis of the structural level of the organization at which costs are incurred. Activity Based Costing (ABC) considers the activities performed and the causes of these activities. Activity Based Life Cycle Cost (LCC) approach is different from the traditional LCC approach, although both rely on cost estimation across the life cycle of systems. While ABC identifies the causal relationships of cost drivers to activities, Activity Based LCC as an offspring of ABC is in fact a Life Cycle Costing analysis and not just a cash flow analysis. Activity Based LCC can in many ways be considered as a synthesis of ABC, LCC, and Monte Carlo methods. The sensitivity analysis measures statistically how the uncertainty of the different assumption cells affects the uncertainty of the forecast cells using rank correlation as measure.
