1. 1 Introduction to LIFE CYCLE COSTING (LCC) Based on ASTM Building Economics Standards May 24, 2006 Presented by:Robert Charette Hosted by:Harvard Green Campus Initiative

2. 2 Outline 1.The Notion of Life Cycle Costing 2.Data Requirements 3.Present Value Factors 4.Calculating Life Cycle Costs - Examples 5.Supplementary Evaluation Measures - Examples 6.Integrating LCC in the Design Process

3. 3 1. The Notion of Life Cycle Costing

4. 4 Life-Cycle Cost Analysis (LCCA)‏ A method of economic analysis that sums up, over a given study period, all relevant costs of a building, building system, or building component, in present value (PV) dollars, today’s dollar.

5. 5 Source: Means Life Cycle Costing For Facilities Initial Cost – Office Building - $100 / SF % of Total Building Cost

6. 6 Source: Means Life Cycle Costing For Facilities Life Cycle Cost – Office Building - $200 / SF Life Cycle Cost – Present Value $ / ft 2 Initial CostOperational Cost

7. 7 ASTM Standards Present Value Factors (4) – E917 SPVSPV* UPVUPV* Evaluation Measures (4)‏ NS – E1074AIRR – E1057 SIR – E964DPB – E1121

8. 8 2. Data Requirements for LCC

9. 9 Data Requirements for LCC A.Investment costs B.OM&R costs C.Cyclical renewal costs D.Financial criteria d – discount rate % e – escalation rate % n – study period years

10. 10 3.Present Value Factors

11. 11 Four Present Value Factors From Financial Tables 1. SPV - Single Present Value (w/o escalation) 2. UPV - Uniform Present Value (w/o escalation) 3.SPV* - Modified Single Present Value (with escalation) 4.UPV*- Modified Uniform Present Value Value (with escalation))‏

12. 12 4.Calculating Life Cycle Costs

13. 13 Example – LCC of Competing Heating / Cooling Systems System A: Electric baseboard and window air conditioner System B: Heat Pump Financial Criteria: Discount Rate d = 8% Energy Escalation e e = 6% Maintenance Escalation e m = 5% Study Period N = 15 years

14. 14  Investment Related Costs Initial Cost – I o $1,500 Replacement Cost Year 8 (Base Yr $)$400 Residual Value (Year 15 $) $150  Operation Related Costs Base Year Electric Energy Cost$1,200 Base Year OM&R Cost$50 System A: Electric Baseboard and Window Air Conditioner

15. 15 LCC System A PV Investment Costs PV Operational Costs + = $1,772 + $16,156 = $17,927

16. 16 LCC System B PV Investment Costs PV Operational Costs + =$3,384 + $12,798 = $16,182 LCC System B $1,745 less or 10% less

17. 17 5. Supplementary Evaluation Measures

18. 18 Four Supplementary Evaluation Measures From Financial Tables 1.Net Savings - (NS) E1074 2.Savings-to-Investment Ratio - (SIR) E964 3.Adjusted Internal Rate of Return - (AIRR) E1057 4.Discounted Payback - (DPB) E1121

19. 19 Example - NS, SIR, AIRR, DPB Attic Roof Insulation – R11 to R19 Additional Investment Cost – I $1500 Annual Energy Savings – A 0 $260 Financial Criteria: d = 8% e e = 6% N = 30 yrs

20. 20 Suplementary Evaluation Measures Additional Investment of $1,500 for Insulation 1.Net Savings (NS)$4,420 2.Savings-to-Investment Ratio (SIR)3.9 3.Adjusted Internal Rate of Return (AIRR)13% 4.Discounted Payback (DPB)6.2 years

21. 21 6. Integrating LCC in the Design Process

22. 22 Integrating LCC into the Design Process

23. 23 Part of the Solution An Integrated Design Process with all stakeholders that includes at the Schematic Phase: ---------------------------------------------------------------------------- A Baseline Preliminary Project Description (PPD) in accordance with CSI/CSC Practice FF/180 An Elemental Cost Estimate With Analytic Parametrs An Energy Analysis Simulation Model

24. 24 © The Construction Specifications Institute Manual of Practice FF/180 Chart 3.4 Preliminary Project Description (PPD)‏

25. 25 Table 4.3 UNIFORMAT II Elemental Cost Summary for Buildings

26. 26 kWh / SF vs targeted energy budget Identify energy drivers Identify alternatives to be evaluated Baseline Energy Simulation

27. 27 Summary 1.The Notion of Life Cycle Costing 2.Data Requirements 3.Present Value Factors 4.Calculating Life Cycle Costs - Examples 5.Supplementary Evaluation Measures - Examples 6.Integrating LCC in the Design Process

28. 28 End Robert Charette, PE, CVS robert_charette@sympatico.ca www.lifecyclecosting.org 514-739-3522 Harvard Green Campus Initiative www.greencampus.harvard.edu 617-496-1278