Sunday, July 24, 2011

Life Cycle Cost Analysis

One of the most important considerations of investors of energy-saving or green building project is knowing if and when the investment will pay off. In order to attract investors there must be assurances that their investment is profitable. Investors, owners and project managers employ various tools to evaluate fiscal feasibility and one of the most effective means for assessing total cost is the Life Cycle Cost Analysis (LCCA).

LCCA is an assessment method that takes into account the fiscal aspects in the acquisition, ownership and disposition of building projects. It can also be brought to bear by project managers to weed out alternative possibilities and focus in on achieving project performance goals. When comparing two or more design alternatives, the Energy Life Cycle Cost Analysis (ELCCA) method can be used. ELCCA is a computer model that accurately quantifies different design alternatives.

Federal Requirements

LCCA makes use of systematic valuations and comparisons of available building design alternatives to determine the best choices in terms of total cost effectiveness including ownership, operations and maintenance of a particular building. It follows a set of life cycle cost methodologies and procedures under the Code of Federal Regulations (CFR) and is part of the Federal Energy Management and Planning Program. LCCA rules conform to the requirements of energy conservation legislation, including requirements defined by the NECPA and Executive Order 13423 also known as the Strengthening Federal Environmental, Energy, and Transportation Management law.

Purpose of LCCA

In green building projects various costs can be identified that will eventually determine the project's Total Overall Cost of Ownership. These include: initial costs from purchasing, acquisition and construction; operation, maintenance and repair costs; replacement costs; disposal costs; energy costs; finance charges or interest payments; and other non-monetary costs that a project may incur.

In short, LCCA is used as a tool for determining overall cost of each design alternative for the purpose of identifying the choice that will provide the lowest TCA (Total Cost of Ownership) without compromising quality and functionality. When performed at earlier stages of a project, particularly during the design process, project managers can select which alternative will result in the lowest life-cycle cost.

Benefits of LCCA

LCCA is applicable not only to green building project initiatives but also capital investment decision making. It is very useful in identifying which building alternatives will provide the most cost-effective long term design. This establishes LCCA as a better tool for identifying the total cost of ownership compared to other methods that focus on first costs or short-term costs related to operations alone.

To illustrate the benefits of using LCCA we could determine if using a high-performance HVAC or glazing system is more cost-effective in the long term.. A critical part of this process is to take into account both short term and long term costs as they relate to ROI. It is often assumed that high initial costs may out-weigh long term benefits. This is not always true and can be proven using the LCCA methodology. It is also useful to note that LCCA can be applied to various levels of complexity in a project's life cycle, from start-up to disposition.

LCCA and Green Building

When considering energy use in cooling, heating, boiling, lighting and other operations, ELCCA can be an effective analysis and decision-making tool for selecting the most cost-effective system options. The report generated by the ELCCA modeling identifies and recommends the best and most cost-effective design alternatives for green buildings in terms of energy efficiency, comfort, productivity and health of the occupants.

ELCCA is performed as a non-static process and is continuously refined and adjusted whenever new alternatives are identified and adopted. The final design may be a combination of many decisions based on the identification and selection process defined by the ELCCA. These comparisons and decisions are properly documented with corresponding results in the final ELCCA report.

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