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LCC YUSUF OZ FATIH BOLUKBAS HUSEYIN ANIL KARABULUT

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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 assets service life

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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".

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Life cycle costing model LCC model is an accounting structure containing terms and factors which enable estimation of an asset's component costs

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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.

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LCC: the Design Stage Effects to be considered: Physical Economical Functional Technological

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LCC: the Design Stage Certainty of service life cant be exactly determined unless all influencing factors are taken into consideration.

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LCC: the Design Stage Design Environmental Life-cycle Assessment Resource depletion Waste Air Pollution Land Pollution

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LCC: the Design Stage Products are required to have: Waste minimization Lower emission Sustainability

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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

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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

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LCC: the Design Stage Risk analysis and management General risks: Political risks Economical risks Environmental risks Social risks

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LCC: the Design Stage Design project specific risks: project finance, design processes, costing and estimation processes preconstruction decision making construction and operation processes

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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

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DATA REQUIRED FOR LCC CALCULATION 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 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

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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)

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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

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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

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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

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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

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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

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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

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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

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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 http://www.treasury.nsw.gov.au/__data/a ssets/pdf_file/0005/5099/life_cycle_costing s.pdf

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