One of the most challenging aspects of property ownership is predicting and covering expenses related to maintenance and operations. Failure to properly anticipate and cover these costs can negatively impact profitability and utility. Even worse, property owners who are confronted with unexpected costs may begin to defer maintenance, which can ultimately threaten the structural soundness and safety of a building or system. The key to preventing these scenarios is to analyze life cycle cost before investing in a building or piece of property.
Why is it important to calculate life cycle cost?
In order to be successful, prospective owners and facility managers must possess the resources to properly maintain their property. Calculating life cycle cost of a facility or property enables owners and managers to have a firm grasp on the costs to acquire, operate, and maintain a building or system. Specifically, they develop expertise with the following:
- Acquisition and procurement costs
- Construction costs
- Fuel and energy costs
- The cost to replace parts
- Financial costs, such as loan payments
What is the best way to calculate life cycle cost?
The best way to assess the total cost of owning a building is to conduct a life cycle cost analysis (LCCA). Performing an LCCA enables building owners to identify the most efficient and affordable way to buy, operate, and maintain a building or piece of property. For instance, studies show that the total life cycle cost of a century old bascule bridge can be less than five times the bridge’s initial cost. Calculating these costs would encompass a multitude of expenses such as the following:
- User costs such as impaired capacity around construction zones
- Periodic maintenance costs to keep the bridge structurally sound
- Restoration costs that include large-scale repairs
- Rehabilitation costs to modernize the bridge
To ensure that life cycle costs are properly interpreted, analysts typically present figures in terms of the net present value (NPV). The NPV is obtained by subtracting the present cash flow values from the present value of incoming cash over a defined time period.
When should you conduct a life cycle cost analysis?
While you can technically perform an LCCA at any point in time, it is best to conduct an LCCA as early as possible in the project’s lifespan. Researchers recommend that analyses be completed during the project’s design phase when engineers and developers are evaluating various design alternatives. Ideally, life cycle costing should be integrated into the design process. If the analysis is conducted after the initial stages of a project, an analyst must be sure to exclude any costs that have already been incurred.
What Are the Top Benefits of a Life Cycle Cost Analysis?
Analyzing the life cycle cost of a facility or property offers a variety of short-term and long-term benefits. From enhanced forecasting abilities to increased focus on energy conservation, a life cycle cost analysis yields many benefits. Below are the top ten advantages of conducting a life cycle cost analysis.
1) Building owners become knowledgeable about property costs. A life cycle cost analysis introduces property owners to many important concepts that are used to calculate life cycle costs. For instance, cost analyses might describe certain costs as “sunk”, indicating that those costs are not applicable to the analysis. “First” costs, on the other hand, refer to purchase price and construction costs.
2) Facility managers can prepare a maintenance schedule that promotes efficiency. Life cycle costing yields long-term information about property maintenance and costs. When this information is obtained in an organized format during a project’s development phase, property owners and managers can design a maintenance schedule that does not interfere with periods of peak operation. Additionally, managers can ensure that they have sufficient manpower and resources to tend to maintenance needs.
3) Maintenance and repair budgets will be more accurate. Failure to accurately forecast maintenance and repair expenses can lead to the demise of a building and its owner. Many experts agree that preventive maintenance costs should account for roughly 2% – 6% of a facility’s yearly operating budget. A life cycle cost analysis can provide you with a cost breakdown that is specific to your facility.
4) Water and utility costs can be predicted with greater detail. Life cycle cost analysts recognize that costs for water and utilities fluctuate differently than other costs. They are typically based on the rate of usage and consumption in addition to price projections. Expert analysts take this into consideration when calculating costs.
5) Facility managers can ensure that replacement parts are kept on hand. Life cycle cost analyses highlight the importance of maintaining a stockpile of replacement parts for your facility. Having the proper parts already on hand will expedite maintenance and repair work, resulting in few interruptions to productivity.
6) Energy conservation is promoted. In an effort to conserve energy, some U.S. utility companies offer special rebates and incentives to property owners who adhere to specific energy compliance standards. Life cycle costs are inclusive of energy costs, thereby encouraging architects and developers to design energy-efficient structures.
7) Two alternative designs can be compared from a long-term cost standpoint. Comparing alternative designs is becoming more common as stakeholders work to ensure that they invest in a structure that yields the greatest economic results in the long run. This strategy is a particularly effective way to expose a project that features low initial costs but high long-term expenses.
8) Life cycle cost can be integrated into staff training. Introducing facility staff to the concept of life cycle cost is the first step to ensuring that all employees focus on facility care and maintenance. In particular, staff should understand how their individual maintenance efforts contribute to the longevity of a structure or piece of property.
9) Compliance with building codes and regulations is fostered. Compliance with building codes and regulations is essential for stakeholder approval in most countries. Calculating life cycle cost can help developers ensure that a project achieves compliance with codes and project requirements.
10) Public safety is enhanced. In the long run, the benefits of life cycle costing extend far beyond the scope of the initial project. By encouraging regulatory compliance, staff training, and energy conservation, life cycle cost analyses make buildings and public property safer places for residents to frequent.
How can you obtain a life cycle cost analysis?
The best way to obtain a life cycle cost analysis is to enlist the support of an industry expert. An experienced professional engineering firm will have the tools and resources to analyze a proposed project in its formative stages and present a summary of projected lifetime expenses in terms of present-day values. Ideally, developers, architects, and property owners should seek an engineering expert that demonstrates the following:
- A 24/7 workforce that is dedicated to superb customer service
- Strict adherence to deadlines
- A keen understanding of the variance in inflation rate assumptions for a multitude of costs
- Secure data transfer to ensure that client information is kept confidential
- A desire to engage with customers across the globe to ensure customization of deliverables
With the expertise of a professional engineering agency, you can gain a detailed understanding of the true lifetime cost of owning a building, system, or structure. Possessing this valuable information before you invest in a piece of property will help ensure that you have the resources to properly maintain your investment.