Life Cycle Costing

Presented by:
Renee L. Hoekstra, CVS
RH & Associates, Inc.
Life-Cycle Cost
Analysis (LCCA)

Definition
• Life-Cycle Costing (LCC)
is the development of all
significant costs of
ownership of an item,
system, facility or
product over a specified
length of time expressed
in equivalent dollars
Why is LCC Important?

 85% of a Facility’s Total Cost is in

Operations and Maintenance
Life-Cycle Cost Analysis (LCC)

Basic Economic Concepts

• Time Value of Money (Interest)
• The compounding effect

• $1000 @ 10% interest compounded

annually grows to $10,840 in 25 years
• Equivalent Costs
• Equating all costs to a common
baseline using an interest rate to
adjust for variable expenditure years
(i.e. discount rate)
Life-Cycle Cost Analysis (LCC)

LCC Methods
• Present Worth Method
• All future costs recalculated to
present day values (discount rate
adjusts for inflation and interest)
• Constant Dollar Approach

• Annualized Method
• All future costs estimated based
on the year of its expenditure
(future rates of inflation and
interest must be predicted)
• Current Dollar Approach
Life-Cycle Cost Analysis (LCCA)
 Benefits of LCCA
 Assists agencies/teams in assessing
economic consequences of alternatives
 An existing building vs. new
 Systems or Components

 Staffing Efficiencies

 Improved Performance

 Newer Technology vs. Existing

Technology
Life-Cycle Cost Analysis (LCCA)

 Government Seeing the Benefits

 1977 Federal mandate to reduce
energy consumption by 45%
 1978, National Energy Conservation
Policy mandates all new federal
buildings be life cycle cost-effective
 Various State legislations mandating
life cycle cost analysis on all state
facilities
Life-Cycle Cost Analysis (LCCA)

 Owner Demands
 Facilities with lowest possible initial
costs
 Minimized annual energy consumption
 Minimized maintenance costs
 Minimized replacement costs
 Minimized staffing costs
 Highest quality
 Best appearance
Life-Cycle Cost Analysis (LCCA)

 Reasons for Little or No LCCA

 Lack of management and owner
commitment
 Lack of innovative ideas
 Lack of life cycle cost information
 Honest wrong beliefs
 Habits and attitudes
 No funding allocated
Life-Cycle Cost Analysis (LCC)

LCC Data Sources

• Initial Project Costs
• Finance Costs
• Energy Costs
• Maintenance, Repair and
Custodial Costs
• Replacement and Alteration
Costs
• Insurance Costs
• Salvage Values
• Associated Costs
• Functional Use

• Down time
Life-Cycle Cost Analysis (LCC)

Using LCC ON Your Projects

• Identify Economic Criteria

• Criteria

• Sources of Information

• Evaluate Life Cycle Costs and

Benefits for your approaches
• Select the Design Alternative
that truly is the best
Life-Cycle Cost Analysis (LCC)

PROJECT EXAMPLE
Life-Cycle Cost
Analysis (LCC) - Example
Life-Cycle Cost Analysis (LCC)

Presented by:

Renee L. Hoekstra, CVS

RH & Associates, Inc.
6677 W. Thunderbird Road, K183
Glendale, AZ 85306
(623) 266-3943 (800) 480-1401
www.rhpartnering.com