Life-cycle cost analysis (LCCA)
Group: Mikael Lindqvist, Milla Mattila, Wu Nan, Tuomas Ruponen, Eero-Matti Vainio,
Jouni Virtanen
Life-cycle cost analysis (LCCA)
General
Purpose: 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)
Costs
Initial 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)
Costs
Non 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)
Costs
Residual 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 analysis
Present-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
Calculation
Life-cycle cost analysis (LCCA)
When 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
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)
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