Life Cycle Costing (Practice)

Learning outcomes To study the practical application of LCC in buildings and its components To understand the Sensitivity Analysis

Life cycle cost plan – key steps Establish the lifespan (economic or physical) of the facility (building/ infrastructure / other products) Identify the replacement intervals of each component / element (BCIS component lifespan) Select the appropriate discount rate (Green book for Govt projects) Calculate the PV of future cost (including end of life cost) One off cost (BCIS LCC sources)  Annual cost (BCIS LCC sources) 

Sensitivity Analysis A technique to determine how different values of an independent variable impact a particular dependent variable under a given set of assumptions. LCC cost = Capital cost + M&O cost + End of life cost + other cost Dependent variable Independent variables

Sensitivity Analysis - variables LCC cost = Capital cost + M&O cost + End of life cost + other cost Capital cost – min, typical, max Building life span – min, typical, max Component life span – min, typical, max Discount rate – min, typical, max

Life cycle costing for windows Softwood Hardwood Aluminium Building life span  60 years

a) Cost data Capital cost Renewal cost Redecoration cost Cleaning cost Softwood double glazed (d/g) including fixing and decoration = £350 Hardwood d/g including fixing and decoration = £450 Aluminium d/g including fixing and decoration = £500 Renewal cost Cost of a new window + taking out existing window E.g Softwood (£350+£20) = £370, Hardwood (£450 + £20), Al (£500 + £20) Redecoration cost Cost of painting / Waxing etc Cleaning cost Annually – Dusting etc. Other costs (Carbon)

b) Renewal interval NPV X Y Z LCC criteria Softwood Hardwood Aluminium Life expectancy 15 yrs 30 yrs 60 yrs Renewal 30 yrs Redecoration 5 yrs Cleaning annually NPV X Y Z BCIS

BCIS  Component life

Life expectancy (renewal intervals) 15 10 20 30 20 55 60 45 70

LCC (Softwood window) NPV £733.72 Use PV = FV / (1+i) n Assume renewal cost = £370 Renewal every 15 year 15th = 370/(1+0.08)15 = 116.64 30th = 370/(1+0.08)30 = 36.77 45th = 370/(1+0.08)45 = 11.59 Total cost of renewal = £165.00 LCC components Cost Initial capital cost £350.00 Renewal (every 15 years) £165.00 Redecoration (every 5 years) £33.07 Cleaning (annually) £185.65 NPV £733.72 Use PV of £1 per annum (years purchase) Assume cost of cleaning per annum is £15 Total cost of cleaning = £15 x [1 – {1/(1+.08)60}] 0.08 =£15 x 12.377 = £185.65 Use PV = FV / (1+i) n Redecoration every 5 year. Assume cost of redecoration as £20 5th = 20/(1+0.08)5 10th = 20/(1+0.08)10 20th , 25th, 35th, 40th, 50th, 55th Total present cost of redecorations = £33.07

LCC (Hardwood window) NPV £732.35 LCC components Cost Initial capital cost £450.00 Renewal (every 30 years) £46.70 Redecoration (every 5 years) £50.00 Cleaning £185.65 NPV £732.35 Use PV = FV / (1+i) n Renewal every 30 year 30th = 470/(1+0.08) 30 Total cost of renewal = £46.70 Use PV of £1 per annum (years purchase) Assume cost of cleaning per annum is £15 Total cost of cleaning = £15 x [1 – {1/(1+.08) 60}] 0.08 =£15 x 12.377 = £185.65 Use PV = FV / (1+i) n Redecoration every 5 year. Assume cost of redecoration as £25 5th = 25/(1+0.08)5 10th = 25/(1+0.08)10 15th = 25/(1+0.08)15 20th, 25th, 35th, 40th, 45th, 50th, 55th Total cost of redecorations = £50.00

LCC (Aluminium window) LCC components Cost Initial capital cost 500.00 Renewal (every 60 years) Redecoration (every 5 years) 63.00 Cleaning £185.65 NPV 748.65 Use PV = FV / (1+i) n Renewal every 60 year Total cost of renewal = £0 Use PV = FV / (1+i)n Redecoration every 5 year. Assume cost of redecoration as £30 5th = 30/(1+0.08)5 10th = 30/(1+0.08)10 15th = 30/(1+0.08)15 20th, 25th, 30th, 35th, 40th, 45th, 50th, 55th Total cost of redecorations = £63.00 Use PV of £1 per annum (years purchase) Assume cost of cleaning per annum is £15 Total cost of cleaning = £15 x [1 – {1/(1+.08) 60}] 0.08 =£15 x 12.377 = £185.65

Best option (based on LCC) Softwood Hardwood Aluminium Initial capital cost £350.00 £450.00 £500.00 LCC £733.72 £732.35 £748.65 Best option (LCC) 2 1 3

Sensitivity Analysis - softwood window Life expectancy 10 Yrs 15 Yrs 20 Yrs NPV ? £ 733.72

Component life expectancy = 10 years LCC components Cost Initial capital cost £350.00 Renewal (every 10 years) £312.45 Redecoration (every 5 years) £25.10 Cleaning £185.65 NPV 873.20 Use PV = FV / (1+i) n Renewal every 10 year 10th = 370/(1+0.08)10 20th = 370/(1+0.08)20 30th , 40th and 50th Total cost of renewal = £312.45 Use PV of £1 per annum (years purchase) Assume cost of cleaning per annum is £15 Total cost of cleaning = £15 x [1 – {1/(1+.08)60}] 0.08 =£15 x 12.377 = £185.65 Use PV = FV / (1+i) n Redecoration every 5 year 5th = 20/(1+0.08)5 15th = 20/(1+0.08)15 25th = 10/(1+0.08)25 35th, 45th, 55th Total cost of redecorations = £25.10

Window life expectancy = 20 years WLC components Cost Initial capital cost £350.00 Renewal (every 20 years) £96.41 Redecoration (every 5 years) £36.37 Cleaning £185.65 NPV 668.43 Use PV = FV / (1+i) n Renewal every 20 year 20th = 370/(1+0.08) 20 40th = 370/(1+0.08) 40 Total cost of renewal = £96.41 Use PV of £1 per annum (years purchase) Assume cost of cleaning per annum is £15 Total cost of cleaning = £15 x [1 – {1/(1+.08) 60}] 0.08 =£15 x 12.377 = £185.65 Use PV = FV / (1+i) n Redecoration every 5 year 5th = 20/(1+0.08) 5 10th = 20/(1+0.08) 10 15th = 20/(1+0.08) 15 25th, 30th, 35th, 45th, 50th, 55th Total cost of redecorations = £36.37

Sensitivity Analysis - softwood window Life expectancy 10 Yrs 15 Yrs 20 Yrs NPV £873.20 £733.72 £668.43

Questions?