Step-by-Step Approach to Life Cycle Costing for Building Construction
Introduction: Life cycle costing (LCC) is a financial analysis method used in building construction that takes into consideration the total costs associated with a building over its entire life cycle, including its construction, operation, maintenance, and end-of-life phases. It provides a comprehensive and holistic approach to evaluating the financial viability of building projects, allowing stakeholders to make informed decisions about the long-term costs and benefits associated with different design, material, and operational choices. In this blog article, we will outline a step-by-step approach to conducting a life cycle costing analysis for a building construction project.
Step 1: Define the Scope and Objectives of the Analysis The first step in conducting a life cycle costing analysis is to clearly define the scope and objectives of the analysis. This includes determining the time period for the analysis (e.g., 30 years, 50 years), identifying the building components and systems to be included in the analysis (e.g., construction materials, HVAC systems, roofing, etc.), and establishing the financial metrics to be used (e.g., net present value, internal rate of return, payback period, etc.).
Step 2: Collect Data and Establish Baseline Costs The next step is to collect data on the costs associated with the different building components and systems included in the analysis. This includes costs associated with the initial construction, installation, operation, maintenance, and replacement of building components over the life cycle of the building. Baseline costs are established based on current market rates, industry standards, and historical data.
Step 3: Estimate Future Costs and Benefits Once the baseline costs are established, the next step is to estimate the future costs and benefits associated with the building components and systems over the projected life cycle of the building. This includes estimating costs associated with maintenance, repairs, replacements, energy consumption, and other operational expenses, as well as estimating any potential benefits, such as energy savings, tax incentives, or salvage value of building components at the end of their useful life.
Step 4: Discount and Adjust Costs and Benefits To account for the time value of money and to compare costs and benefits over time, it is necessary to discount and adjust the costs and benefits to their present value. This involves applying a discount rate, which represents the minimum rate of return required by the project stakeholders, to adjust the future costs and benefits back to their current value. The discount rate is typically based on the cost of capital or the opportunity cost of funds.
Step 5: Analyze and Interpret Results Once all the costs and benefits are estimated, discounted, and adjusted, the next step is to analyze and interpret the results. This includes calculating financial metrics such as net present value (NPV), internal rate of return (IRR), and payback period, to determine the financial feasibility and viability of the building project. Positive NPV and IRR, and shorter payback period indicate that the project is financially viable and generates a positive return on investment.
Step 6: Sensitivity Analysis and Risk Assessment To account for uncertainties and risks associated with the building project, it is important to conduct sensitivity analysis and risk assessment. This involves testing the sensitivity of the results to changes in key assumptions, such as construction costs, maintenance costs, discount rate, and other factors that may impact the financial outcomes of the project. Risk assessment involves identifying and evaluating potential risks and uncertainties that may affect the costs and benefits associated with the building project, and developing strategies to mitigate those risks.
Step 7: Incorporate Findings into Decision-Making The final step in the life cycle costing analysis is to incorporate the findings into the decision-making process. The results of the analysis can provide valuable insights for stakeholders, including owners, architects, contractors
able: Tools and Software for Conducting Life Cycle Costing for Buildings
| Tool/Software | Description | Features |
|---|---|---|
| Microsoft Excel | Spreadsheet software commonly used for financial analysis, including life cycle costing | – Allows for data input, calculations, and analysis in a tabular format <br> – Provides functions for financial calculations, such as net present value, internal rate of return, and payback period <br> – Can create charts and graphs for visual representation of results |
| eQUEST | Building energy simulation software that can be used for life cycle costing analysis | – Provides detailed energy analysis of building components and systems <br> – Allows for estimating energy consumption, costs, and savings over the building’s life cycle <br> – Can evaluate different design options and their impact on energy costs |
| Building Information Modeling (BIM) Software | 3D modeling software used for building design and construction | – Can be used for life cycle costing analysis by integrating cost data with building components and systems in a virtual model <br> – Allows for estimating costs at different stages of the building’s life cycle, from design to operation and maintenance <br> – Can generate cost reports and visualizations for analysis |
| Life Cycle Assessment (LCA) Software | Software used for conducting life cycle assessments of buildings | – Includes tools for evaluating the environmental impact of building materials and systems <br> – Can be used in conjunction with life cycle costing analysis to assess the sustainability and cost-effectiveness of building projects <br> – Provides data on environmental impacts, such as carbon emissions, energy consumption, and resource depletion |
| Parametric Cost Estimating Software | Software specifically designed for estimating construction costs | – Can be used for life cycle costing analysis by providing accurate and up-to-date cost data for building components and systems <br> – Allows for creating cost estimates for different stages of the building’s life cycle, from construction to operation and maintenance <br> – Can generate detailed cost reports and comparisons between different design options |
| OneClick LCA | Software for life cycle assessment and life cycle costing of buildings | – Provides comprehensive life cycle assessment and life cycle costing functionalities for buildings <br> – Allows for analyzing environmental and cost impacts of different design choices, materials, and systems <br> – Provides customizable reports and visualizations for decision-making and communication purposes |