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Life-Cycle Cost Analysis (LCCA)– ROI

Budget, Construction Cost, Operation, Maintenance, Energy, Return on Investment, Quality & Level of Comfort – End Value

“Life-cycle cost analysis (LCCA) is a method for assessing the total cost of facility ownership. It considers all costs of acquiring, owning, and disposing of a building or building system. LCCA is especially useful when project alternatives that fulfil the same performance requirements, but differ with respect to initial costs and operating costs, have to be compared in order to select the one that maximizes net savings. For example, LCCA will help determine whether the incorporation of a high-performance HVAC or glazing system, which may increase initial cost but result in dramatically reduced operating and maintenance costs, is cost-effective or not. LCCA is not useful for budget allocation.

Lowest life-cycle cost (LCC) is the most straightforward and easy-to-interpret measure of economic evaluation. Some other commonly used measures are Net Savings (or Net Bene-fits), Savings-to-Investment Ratio (or Savings Benefit-to-Cost Ratio), Internal Rate of Return, and Payback Period. They are consistent with the Lowest LCC measure of evaluation if they use the same parameters and length of study period. Building economists, certified value specialists, cost engineers, architects, quantity surveyors, operations researchers, and oth-ers might use any or several of these techniques to evaluate a project. The approach to making cost-effective choices for building-related projects can be quite similar whether it is called cost estimating, value engineering, or economic analysis

The purpose of an LCCA is to estimate the overall costs of project alternatives and to select the design that ensures the facility will provide the lowest overall cost of ownership consistent with its quality and function. The LCCA should be performed early in the design process while there is still a chance to refine the design to ensure a reduction in life-cycle costs (LCC).

The first and most challenging task of an LCCA, or any economic evaluation method, is to determine the economic effects of alternative designs of buildings and building systems and to quantify these effects and express them in dollar amounts.

There are numerous costs associated with acquiring, operating, maintaining, and disposing of a building or building system. Building-related costs usually fall into the following catego-ries:

Initial Costs—Purchase, Acquisition, Construction Costs

Fuel Costs

Operation, Maintenance, and Repair Costs

Replacement Costs

Residual Values—Resale or Salvage Values or Disposal Costs

Finance Charges—Loan Interest Payments

Non-Monetary Benefits or Costs

Only those costs within each category that are relevant to the decision and significant in amount are needed to make a valid investment decision.”

by Sieglinde Fuller National Institute of Standards and Technology (NIST)