Life Cycle Cost Analysis – How to understand, predict and reduce building operational costs

Life Cycle Cost Analysis

In a construction project, the financial assessment is mainly based on initial capital costs. However, the costs generated during the asset operation period can be significant and are often neglected during the design and development stage. Furthermore, these costs, especially maintenance and replacement costs are highly related to the choices made during the design stage.

Therefore, both initial capital costs and future operation costs should be taken into consideration during the decision-making process, namely through a Life Cycle Cost Analysis.

As defined in ISO 15686-6, 3.1.1.8 – Buildings and constructed assets — Service life planning, the Life Cycle Cost analysis is a methodology for systemic economic evaluation of life cycle costs over a period of analysis.

This analysis could be used to support the processes of planning, budgeting and contracting investment in building assets as an absolute analysis, but also used to undertake robust financial option appraisals thus assisting in decision-marking during the design stage.

This study can be carried out throughout different stages of the life cycle of an asset, given different purposes of the analysis.

TERAO can help owners carry out LCC studies in order to:

• Raise understanding of the total cost of an asset, especially the impact of operation, maintenance and replacement costs in a total asset life cycle cost;
• Compare different alternative options with a pre-selected period of analysis;
• Ease the choices between different options in terms of total life cycle cost;
• Identify potential opportunities for better cost-effectiveness;
• Help to achieve an appropriate balance between investment costs and maintenance costs;
• Eventually influences decision-making by introducing the notion of LCC analysis.

TERAO will use the ISO 15686-5: 2008 Standard methodology to carry out LCC. If you need this kind of analysis before any choice of investment or design in your building asset, feel free to contact us at nieong@teraochina.cn for further information. We would be pleased to explain more about the LCC regarding your project.