Life Cycle Costing and Evaluating Design Alternatives

Ramani Sundaram
Whether it is a home renovation or a bigger construction project, alternatives can be evaluated using life cycle costs.

To find out if it is worth buying an electric car, you may have used online calculators. These calculators can indicate cost comparisons between an electric and a hybrid or an electric and a standard gas powered car. The comparisons are based on the ownership costs that include all expenses associated with buying, owning, operating and maintaining a car over its lifespan. Similarly, for installing solar panels at your home, contractor brochures may indicate life cycle comparisons to make you understand how much you will be saving in the long run by going solar and not paying conventional electricity bills. 

LCCA helps the owner to make tradeoffs between different alternatives and make informed investment decisions.

One project alternative may have a higher initial cost but lower operational and maintenance costs. Another may have the opposite with low initial cost and high operating and maintenance costs. Combining economics, discount rate and other inputs and using the life cycle cost analysis (LCCA), the net present value (NPV) can be computed for each alternative. The owner can rank the different alternatives based on the NPVs and choose the one that has the lowest NPV. This method may slightly vary if the life of the alternatives varies or the alternatives can generate revenue (for example through tolls for a bridge or rent for a building). LCCA helps the owner to make tradeoffs between different alternatives and make informed investment decisions.

LCCA can be done for individual items, building systems or components or for the entire project. Some examples are listed below:

  • Building construction - rebuild vs. renovate
  • Structural framing - concrete vs. steel 
  • Roofing - different roofing systems
  • MEP systems - conventional vs. non-conventional or energy saving systems
  • Highways and bridges - asphalt vs. concrete pavement

During the design phase, performing the LCCA during the initial stage at the concept level will be more beneficial to the owner. For specific cases it could also be done during the later stages of design development (DD). LCCA can also be used to compare sustainability goals for specific items. Based on the environmental impact the different alternatives can make, the American Institute of Architects (AIA) has developed a guideline, "AIA guide to Building Life Cycle Assessment in Practice", that describes how it could be done during various design stages. 

Value Engineering and LCCA

Some may think LCCA is the same as value engineering (VE), but their objectives are different. The objective of VE is to see that there is improved value at a reduced cost, without sacrificing the functionality of a product or service. LCCA is to determine the best alternative based on the ownership cost of an item over its useful life.

Usually, LCCA is done during the concept level and a VE study is done during the design development stage. Initial costs are compared for VE, whereas ownership costs are compared for LCCA. In some specific cases, VE and LCCA can be integrated and the life cycle costs may be compared to make the choice between different alternatives.

LCCA Implementation

The importance of LCCA is increasingly felt by different owners and LCCA is applied in many public projects as a decision support tool. Many Federal and State public agencies have started implementing LCCA. The National Institute of Standards and Technology (NIST) has developed a handbook for life cycle costing (PDF,3.4MB). The Building Life Cycle Cost (BLCC) software program is also available from its website for LCCA of capital investments in buildings.

It won't be long before estimators may be presenting the estimated costs in two different ways – one as the dollars per square foot of the initial costs and another as the dollar per square foot of the life cycle costs!

Some agencies like the General Services Administration (GSA) and other transportation agencies include LCCA as one of the deliverables while engaging estimating consultants. Faithful+Gould has provided LCCA for many transportation and other institutional and public projects.

Even though some public and private agencies have implemented LCCA for some of their projects and also published reports about the benefits, LCCA is still not widely practiced. Some of the reasons could be:

  • Owners tend to always think in terms of the initial costs and not the long-term costs
  • Owners want to avoid higher initial costs – with cost overruns in many projects and budget busts, owners want to avoid LCCA that may necessitate choosing the alternative that has higher initial costs
  • Owners do not have funds for the high cost LCCA alternative
  • Owners may have to give up another item in a project to fund the LCCA alternative 
  • Owners may not have trained staff to do the LCCA 
  • Decision makers do not support LCCA

In spite of the implementation issues, any owner will realize the long-term benefits by using LCCA for making investment decisions for their capital projects. Some public agencies have launched the implementation with pilot projects and once they realize its benefits may continue for other projects. Also, with new types of procurement like the Build Operate Transfer (BOT), Public Private Partnership (PPP), etc., the mindset of owners is changing and long sighted policy reforms are likely to happen. It won't be long before estimators may be presenting the estimated costs in two different ways – one as the dollars per square foot of the initial costs and another as the dollar per square foot of the life cycle costs!