Life-Cycle Cost Analysis Essay -- Facility Ownership Finances Accounti

Life-Cycle Cost Analysis Life-cycle cost analysis (LCCA) is a method for assessing the total cost of facility ownership. It takes into account all costs of acquiring, owning, and disposing of a building or building system. LCCA is especially useful when project alternatives that fulfill 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 Benefits), 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 others 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. DESCRIPTION A. Life-Cycle Cost Analysis (LCCA) Method 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.   Ã‚  Ã‚  Ã‚  Ã‚  Viewed over a 30 year period, initial building costs account for approximately just 2% of the total, while operations and maintenance costs equal 6%, and personnel costs equal ... ..., Design, and Development Process, Cost-Effective—Use Economic Analysis to Evaluate Facility Investment Decisions, Cost-Effective—Consider Non-Monetary Benefits such as Aesthetics, Historic Preservation, Security, and Safety, Sustainable, Productive, Functional Publications Building Economics: Theory and Practice by Rosalie T. Ruegg and Harold E. Marshall. New York: Van Nostrand Reinhold, 1990. Energy Price Indices and Discount Factors for Life-Cycle Cost Analysis, Annual Supplement to Handbook 135 by Sieglinde K. Fuller, Amy S. Rushing, and Laura I. Schultz. NISTIR 85-3273-19. Gaithersburg, MD: National Institute of Standards and Technology, April 2004. Also available from the DOE/FEMP Help Desk at 1-877-EERE-INF (1-877-337-3463). Engineering Economy by G. J. Thuesen and W. J. Fabrycky. Prentice Hall, 1993. ISBN 0-13-277491-7. GSA LEED ® Cost Study Life-Cycle Costing Manual for the Federal Energy Management Program by Sieglinde Fuller and S.R. Petersen. NIST Handbook 135. National Institute of Standards and Technology, 1995. Simplified Energy Design Economics by Harold E. Marshall and Rosalie T. Ruegg. NBS SP 544. Washington, DC: National Bureau of Standards, January 1980.