Life-cycle cost analysis (LCCA)

Group: Mikael Lindqvist, Milla Mattila, Wu Nan, Tuomas Ruponen, Eero-Matti Vainio, Jouni Virtanen

GeneralPurpose: to estimate total costs of owning a facility

Measures such as Lowest Life-cycle Cost (LCC)

Useful in comparison of alternative designs

Performed early in the design phase

Challenge: estimating costs and making assumptions

Only economic aspect is evaluated

Life-cycle cost analysis (LCCA)

CostsInitial costs

• includes all possible initial investment costs

• for example land acquisition, construction, renovation, equipment

• estimated by historical data from similar facilities or by using different databases, such as rakennusosien kustannukset 2015

Energy and water cost

• based on consumption, current rates and price projections

• hard to predict at early state of project - can be calculated during design phase

• Energy suppliers provide information about prices and price projections

Life-cycle cost analysis (LCCA)

CostsNon fuel operation, maintenance and repair costs

• Depend on operating schedules and maintenance standards

• Estimating requires engeneering judgement

• Published guidebooks and suppliers provide information

Replacement costs

• Timing and amount lifetime of a system and owning period

• Same sources of information for costs as when estimating the initial costs

■ Base date’s value, LCCA will discount the value to occurrence date’s value

Life-cycle cost analysis (LCCA)

CostsResidual value (RV)

• Monetary value of the building at the end of the owning period

• Can be determined in many ways depending on the condition of the building

One example:

Other costs

• Non-monetary benefits

■ Investments that improve the productivity but the benefits are hard to quantify

• Financial charges and taxes

Life-cycle cost analysis (LCCA)

Present-value analysisPresent-value analysis takes into account the time value of money

• Future cash flows are discounted to a base date to enable better decision making

• Discount rate represents the rate by which ‘future money’ becomes less valuable

Investor’s opportunity cost

Inflation

Life-cycle cost analysis (LCCA)

Present-value analysis• Method 1: When the cash flow and interest rate are assumed to

stay the same during the study period

• Method 2: The cash flow of each year is discounted separately

Life-cycle cost analysis (LCCA)

CalculationWhen all the costs of a building during the whole life-cycle has been identified and discounted to present value, total life-cycle costs can be counted according to formula.

Several variations of this formula, but the basic idea of life-cycle cost assessment calculation is equal.

Life-cycle cost analysis (LCCA)

Application• Investment analysis• Calculations and decisions

Especially • when initial costs are traded for reduced future cost• when different kind of building design alternatives are compared

Buildings may have different initial investment costs, different operating and maintenance and repair costs, and sometimes totally different lives or use

Exceedingly precise assessment method in evaluation of the long-term cost-effectiveness of building or project, comparing in alternative short-term economic calculations which are often only based on early stage costs

Life-cycle cost analysis (LCCA)

Example of LCCA used in Denmark• LCCA used to determine most cost-effective and energy efficient

way to build a multi-storey residential net zero energy building

• study included three levels of energy demand and three alternatives of energy supply systems

• energy levels 0, 1 and 2

energy level 0 has lowest U-values

energy level 2 has highest U-values

Life-cycle cost analysis (LCCA)

Summary of costs in Denmark

• Construction costs decreases with lower thermal properties

• Lower thermal properties leads to higher costs of energy supply systems

• Total costs increases with larger energy supply systems

Life-cycle cost analysis (LCCA)

Uncertainty Assessment in LCCA

Some techniques:

Deterministic techniques (not use probility)

- conservative benefit and cost estimating

- Breakeven Analysis

- Sensitivity Analysis

- risk-adjusted discount rate

- certainty equivalent technique

Probabilistic techniques (use probility)

Life-cycle cost analysis (LCCA)

Sensitivity Analysis

• measures the impact on project outcomes of changing one or more key point values

• advantages: a single input variable output variability (range)

Breakeven Analysis

• benefits = costs

• advantage: simplifies project evaluation and quickly

• common disadvantage: no probability is used; no explicit treatment of risk attitude

Life-cycle cost analysis (LCCA)