Terotechnology

Terotechnology

A Greek word referring to the study of the costs associated with an asset throughout its life cycle, from acquisition to disposal. The goals of this approach are to try to reduce the different costs incurred at the various stages of the asset's life and to derive methods that will help extend the asset's life span. Also known as "life-cycle costing".

Terotechnology uses tools such as net present value, internal rate of return and discounted cash flow in an attempt to minimize the costs associated with the asset in the future. These costs can include engineering, maintenance, wages payable to operate the equipment, operating costs and even disposal costs.

Notes:

For example, let's say an oil company is attempting to map out the costs of an offshore oil platform. They would use terotechnology to map out the exact costs associated with assembly, transportation, maintenance and dismantling of the platform and finally a calculation of salvage value.

This study is not an exact science as you can imagine. There are many different variables that need to be estimated and approximated. However, a company who does not use this kind of study may be worse off than one that approaches an asset's life cycle in a more ad hoc manner.

See also: Asset, Capital Budgeting, Discounted Cash Flow - DCF, Internal Rate of Return - IRR, Net Present Value - NPV, Operating Expense