Starting with the basics, what is the purpose of life cycle costing?
Life cycle costing analysis (LCCA or LCC for short) is the most accurate way to increase your building’s project savings by comparing different design alternatives. As opposed to more commonly used ROI-based calculations, LCC is conducted based on long-term costs and savings, keeping in mind the fact that they are interconnected. The “life cycle” part means that LCC assesses all costs that occur over the building’s lifetime including construction costs, maintaining, operating, and end-of-life related costs. To be more specific, the lifespan of a building consists of five main stages: concept planning, design, construction, operations, and replacement or disposal.
Life cycle costing is
particularly useful for the estimating total costs in the early stage of a project . The life cycle
costing process usually includes the following steps:
• planning of the life cycle costing analysis (e.g. definition of objectives);
• selection and development of the life cycle costing model (e.g. cost breakdown structure,
identifying data sources and contingencies);
• application of the life cycle costing model
• documentation and review of life cycle costing results.
What does life cycle costing in construction really mean?
- In a clear, structured cost analysis you can easily see what cost sources influence your total cost of ownership the most.
- When the major expenditure sources are clear, you can quickly identify hotspots for improvement in your baseline design and test different solutions for the existing objectives.
- Knowing your alternatives, you can compare their benefits and accordingly relocate the costs to gain maximum value out of your project.
Therefore, LCC is an objective, down-to-earth approach. Obviously, the earlier is performed the better the result, since it is easier to make changes in the design stage. And the more options and freedom you have, the more value you can get from your LCC analysis.
The understanding of life cycle costs can lead to a drastic reduction of the total cost of building ownership. LCC allows you to find the most optimal costing solution for your building project, to compare between design alternative, and to choose the one that will boost your project’s value.
Decisions in the life cycle costing process
Investors can sight the life cycle costing process of a building as a series of investment decisions.
The procedure includes parallel and interrelated phases. A theoretical model (shown above)
integrates six following steps :
• justification for investment requirements.
• conceptual development stage.
• design stage.
• production stage.
• operational stage.
• end of economic life stage.
The horizontal axis represents a project phase and the time, at which key decisions and life cycle
costing analysis need to be performed or updated. The vertical axis represents accumulative costs and
costs of purchase and option within the life cycle of a construction project. This also can be seen as the
acquisition cost of moving from one stage to another within the life span of a construction project. The
utilization of a model should take place as early as possible and continue until the end life of the
building.
The real series of decisions depends upon the specific project procurement route strategy. Some
are following decisions, which could be assigned to the development process, whilst others might be
connected with procurement and operational issues. The concept of depicting the life cycle of a
building as a series of investment decisions is universal and could contain a diversity of miscellaneous development scenarios. Risk analysis and life cycle costing are conducted at the beginning and
updated at the end of each stage of the construction project. Identifying, quantifying, responding and
managing cost and risk at each investment stage of a construction project could be a useful framework
for comprehension cost and risk strategies. However, it could be a useful framework for all decisions
made thorough the life cycle of the building
Decisions concerning the choice of the construction technology and construction materials are not
any longer based entirely on technical and economic attitudes, but are becoming increasingly
influenced by life cycle cost and environmental considerations. In fact, the capability to influence the
outcomes of whole life ownership is enormous during the design phase. The types of material
specified, the quality of the design and the contracting method have to be chosen directly upon
operation and maintenance costs. By the way, the used procurement methods may have implications
and great influence on life cycle costs. Operating, maintenance and rehabilitation costs of new and
existing buildings amount to more than 80 % of total life cycle costs . It is well documented that the
majority of decisions about operating, maintenance and rehabilitation costs are predetermined at the
design stage. The opportunities to modify or influence decisions about operating, maintenance and
rehabilitation costs decrease as projects progress through their natural process of development.
Basically, it is crucial to establish a device at the design stage that brings together the life cycle
costing, service life, environmental life cycle assessment, and risk associated with decisions taken at
this stage
What are the main benefits of performing life cycle costing analysis?
Your project costs might drop or remain the same, but you will know that your building project has the highest possible value. You can fix flaws and imperfections of the original design, while positively influencing your bottom line. And that means better durability, higher quality, less maintenance, less risks, and lower operational spending with the same amount of investment.
In some cases, carefully conducted LCC can even result in an increased building lifespan. Better quality materials reduce maintenance costs, and are more resilient, so this potential outcome comes as no surprise.
- Easy Green Building certification credits
LCC credits are included in many Green Building certification schemes, and in some LCC is a mandatory credit. For example, DGNB has mandatory LCA and LCC credits, while BREEAM includes LCC credits split between sub-credits. In the case of DGNB the LCC credit is called ECO 1.1. LIFE CYCLE COST, 9,6 % (Gebäudebezogene Kosten im Lebenszyklus).
Achieving credits is getting more and more complicated with each certification version released, and LCC can be an easy way to get a few extra points.
LCC helps your team to control the project throughout all its stages. It is an excellent planning tool that covers long spans of time. With properly conducted LCC you can effectively avoid surprises, dodge financial risks, and relax while patiently waiting for the next renovation works knowing how much they will cost you beforehand.
References
1. Sieglinde Fuller , (09-19/2016) National Institute of Standards and Technology (NIST) , Life cycle cost analysis ( LCCA)
2. Rachel Blakely-Gray , September 13 2018 How to use life cycle costing
3. Rohit Agarwal , Life-Cycle costing : Meaning , Benefits and Effects
4. Seyda Emekci , (November 2018) , Life cycle costing in construction sector : state of the art review
5. wikipedia , 2014 ,Life-cycle cost analysis
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