LCC
YUSUF OZ
FATIH BOLUKBAS
HUSEYIN ANIL KARABULUT
Introduction
Why use Life Cycle Costing?
Growing pressure to achieve better
outcomes from assets means that
ongoing operating and maintenance
costs must be considered as they
consume more resources over the
asset’s service life
What is life cycle costing?
The Life Cycle Cost (LCC) of an asset is defined as:
 " the total cost throughout its life including
planning, design, acquisition and support costs
and
 any other costs directly attributable to owning or
using the asset".
Life cycle costing model
LCC model is an accounting structure
containing terms and factors which
enable estimation of an asset's
component costs
LCC: the Design Stage
Design Service Life Planning
Existing structures: It focuses on the rest of
service life, maintenance and replacement
costs.
New structures: It requires some mathematical
assessments of components’ service lives.
LCC: the Design Stage
Effects to be considered:
 Physical
 Economical
 Functional
 Technological
LCC: the Design Stage
Certainty of service life can’t be exactly
determined unless all influencing factors
are taken into consideration.
LCC: the Design Stage
Design Environmental Life-cycle Assessment
 Resource
depletion
 Waste
 Air
Pollution
 Land Pollution
LCC: the Design Stage
Products are required to have:
 Waste
minimization
 Lower emission
 Sustainability
LCC: the Design Stage
Design step of LCC is very important with:
 types
of materials,
 the quality of the design,
 contracting and procurement method
 Operating maintenance and
rehabilitation costs
LCC: the Design Stage
Framework for LCC budget estimation
covers these steps:
Understanding client objectives
Defining cost breakdown structure (CBS)
Developing LCC assumptions
Budgeting for LCC risks
Data collection
LCC budget estimate calculation
LCC: the Design Stage
Risk analysis and management
General risks:
 Political risks
 Economical risks
 Environmental risks
 Social risks
LCC: the Design Stage
Design project specific risks:
 project
finance,
 design processes,
 costing and estimation processes
 preconstruction decision making
 construction and operation processes
LCC: the Design Stage
Design risk response measures:
 risk
avoidance: taking less risky decisions
 risk reduction: allocating additional resources
 risk retention: insurances
 risk transfer: transfer obtained risky situation for
experts of it
DATA REQUIRED FOR LCC CALCULATION
Cost Data
•Acquisition cost
•Capital cost, taxes
•Inflation, discount rate
•Management, operating,
replacement, cleaning,
maintenance cost etc.
Quality Data
• Condition of sanitary
fittings
• Pipe work furnishing
• Fabric road surfacing
Occupancy Data
•Occupancy profile
•Functionality
•Hours of use
•Particular feature
Types of
Life cycle
data
Physical Data
• Superficial floor area
• Window area
• Types of heating systems
• Functional areas
• Walls and ceilings
• Number of occupants
Performance Data
• Maintenance cycles
• Thermal conductivity
• Cleaning cycles
• Occupancy time and gas
EVALUATION OF LCC METHODS






Simple payback
Discount payback method (DPP)
Net present value (NPV)
Equivalent annual cost (ECA)
Internal rate of return (IRR)
Net saving (NS)
SIMPLE PAYBACK
What does it calculate
Calculate the time required to return the initial investment.
The investment with the shortest pay-back time is the most
profitable one
 Advantage
Quick and easy calculation. Result easy to interpret
 Disadvantage
Does not take inflation, interest or cash flow into account

DISCOUNT PAYBACK METHOD
What does it calculate
Basically the same as the simple payback method, it just takes the
time value into account

Advantage
Takes the time value of money into account

Disadvantage
Ignores all cash flow outside the payback period

NET PRESENT VALUE(NPV)
What does it calculate
NPV is the result of the application of discount factors, based on a
required rate of return to each years projected cash flow, both
in and out, so that the cash flows are discounted to present
value.
 Advantage
Takes the time value of money into account. Generates the return
equal to the market rate of interest. It use all available data
 Disadvantage
Not usable when the comparing alternatives have different life
length. Not easy to interpret

EQUIVALENT ANNUAL COST(ECA)
What does it calculate
This method express the one time NPV of an alternative as a
uniform equivalent annual cost

Advantage
Different alternatives with different lifes length can be compared

Disadvantage
Just gives an average number. It does not indicate the actual
coast during each year of the LCC

INTERNAL RATE OF RETURN(IRR)
What does it calculate
It is possible to calculate the test discount rate that will generate
an NPV of zero. The alternative with the highest IRR is the best
alternative
 Advantage
Result get presented in percent which gives an obvious
interpretation
 Disadvantage
Calculations need a trail and error procedure. IRR can be just
calculated if the investments will generate an income

NET SAVING(NS)
What does it calculate
The NS is calculated as the difference between the present worth
of the income generated by an investment and the amount
invested.

Advantage
Easily understood investment appraisal technique

Disadvantage
NS can be only use if the investment generates an income

NET PRESENT VALUE(NPV)

The most suitable approach for LCC in the construction industry
is the net present value (NPV) method.
NPV = C + R – S + A + M + E
C = investment costs
R = replacement costs
S = the resale value at the end of study period
A = annually recurring operating, maintenance and repair costs
(except energy costs)
M = non-annually recurring operating, maintenance and repair
cost (except energy costs)
E = energy costs
REFERENCES
 Whole
Life-cycle Costing, Abdelmalim
Boussabaine and Richard Kirkham, 2004
 http://www.treasury.nsw.gov.au/__data/a
ssets/pdf_file/0005/5099/life_cycle_costing
s.pdf
Thanks for listening....