1. Chap 6 MAINTENANCE & LIFE CYCLE COST

2. Life Cycle Cost Objectives
To effectively evaluate investment options and opportunities
To consider the cost throughout a project’s whole life rather than just initial capital cost
To assist in the effective management of buildings or asset throughout their whole life

3. INTRODUCTION LIFE CYCLE COST
concerns all cost that arise from an investing decision.
It can be used to evaluate
Complete buildings
Elements parts
Systems
Components and materials

4. INTRODUCTION User of LCC Building surveyors Architects Engineers
Contractors
Material manufacturers
Investment analyst
Developer & owner

5. INTRODUCTION LCC of an asset is defined as
Present value of the Total Cost of that asset over its operating life including
Initial cost + capital outlay,
Occupational Cost,
Operating cost and
Disposal cost

6. Transport / Lorry / Taxi / Bus
Theory
Practical Y6
Y10
Y20
Initial cost + capital outlay,
Deposit
Purchase $
Occupational Cost,
COE
Operating cost
Fuel, Maint, Finance cost, parking, summon
Disposal cost
OMV
Scrap

7. Building / Factories Theory Practical Y15 Y30 Y60
Initial cost + capital outlay
Design
Construction
Occupational Cost,
Develop Charge
Land Tax,
Operating cost
Marketing
Maintenance
Upgrading
Disposal cost
Sell
Redevelop

8. Life Cycle Cost Application
evaluation technique to choose between competing option
basis in predicting future running cost
basis for budgeting for future expenditure
etc

9. Life Cycle Cost _Investment
Investment Life
Outcome of a LCC study is dependent upon
the life required of the project
the residual value
the degree of flexibility (econ & tech) can be built into the design to cope with future changes
Building / Assets life is influenced by Obsolescence

10. LCC- Obsolescence Physical Factors: structure integrity
Economic factors
Functional factors
Technological Factors
Special and legal factors

11. LCC- Priority Priorities dependent on client
Building / Assets objectives
Time scales
Capital sources
Revenue sources
Tax position

12. LCC- Alternatives Selection
must involve budgeting team and revenue budgeting team to avoid Opportunity cost
analyze capital investment against running cost & reduced maintenance cost

13. LCC- Alternatives Selection
must involve budgeting team and revenue budgeting team to avoid Opportunity cost
analyze capital investment against running cost & reduced maintenance cost
analyze both tangible and intangible cost & benefits

14. LCC- Alternatives Selection
Example of Bicycle Procurement by NParks
Expensive ? Your thoughts
Price yes!
Cost of maintenance & repair?
Cost of breakdown?
Ergonomics of design?
Employees health benefits?

15. LCC- Cost and Value Cost and Values
Cost includes : Capital cost, Financing cost, Operating Cost, Annual and intermittent maintenance cost, Replacement & Alteration cost, Occupancy cost and Residual value and disposal cost
Values : The time value of money is the value of money figuring in a given amount of interest earned or inflation accrued over a given amount of time. Suggests that a certain amount of money today has different buying power than the same amount of money in the future.

16. LCC- Cost and Value Cost and Values
Cost includes : Capital cost, Financing cost, Operating Cost, Annual and intermittent maintenance cost, Replacement & Alteration cost, Occupancy cost and Residual value and disposal cost

17. LCC- Cost & Value Cost and Values Values :
The time value of money is the value of money figuring in a given amount of interest earned or inflation accrued over a given amount of time. Suggests that a certain amount of money today has different buying power than the same amount of money in the future.

18. LCC- Cost & Value Value of Money
For example, $100 of today's money invested for one year and earning 5% interest will be worth $105 after one year. Therefore, $100 paid now or $105 paid exactly one year from now both have the same value to the recipient who assumes 5% interest; using time value of money terminology, $100 invested for one year at 5% interest has a future value of $105.[1] This notion dates at least to Martín de Azpilcueta (1491–1586) of the School of Salamanca

19. LCC- Cost & Value Value of Money
Present value The current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they be earnings or obligations.[2]

20. LCC- Cost & Value Value of Money
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.[5]
Future value of an annuity (FVA) is the future value of a stream of payments (annuity), assuming the payments are invested at a given rate of interest.

21. LCC- Implementation Implementation Establish biz objectives
Choose method
Formulate assumptions
Identify all the cost and the LC period
Compare cost, Rank alternatives
Perform sensitivity analysis
Investigate capital cost constrain

22. LCC- In Practice Advantages Encourage long term strategic planning
Supports downstream strategic budgeting
Influences overall cost viability of the project or procurement
Influences early stage of decision making

23. LCC- In Practice Dis-Advantages
Assumptions of a known deterministic LC
High cost of performance
High sensitivity to changing requirements

24. LCC- In Practice for Maintenance
Increased used due to
legislation such as Green FM
increased in disposal & decomissioning cost
maintenance cost
..\..\MFM\RP ROI_calculation_tool_projectV2_ (1).xls

25. LCC- In Practice for Maintenance
Maintenance cost such as
Programmed maint
Responsive maint
Cyclic maint
Disposal cost
Running cost / cost in use
Modification of use cost
Expansion / Extension of life cost
..\..\..\Documents\Cyclical maintenance budgetting proposal - Buildings & Hardscape(1).xlsx