Life-Cycle Cost Analysis (LCCA) of Buildings Group 3c: Kalle Sinisalo Tuomo Pehkonen Jarmo Romo Laura Tolvanen Jere Raunama Kalle Vainikka

Life-Cycle of a Building The lifespan of a property or a building from its design and development until its disposal: Concept planning Design Construction Operations Replacement or Disposal

Life-Cycle Costs (LCC) Initial costs - Purchase, Acquisition, Construction costs Fuel Costs Operation, Maintenance and Repair Costs Replacement Costs Residual Values - Resale or Salvage Values or Disposal Costs Finance Charges - Loan Interest Payments Non-Monetary Benefits or Costs

Life-Cycle Cost Analysis (LCCA) “An economic evaluation method for determining the most cost- effective option out of competing alternative.”

Origin Came popular in the 1960’s. US government agencies began implementing to improve cost effectiveness of buildings and equipment procurement. Usage has spread around the business world for project evaluation and management accounting.

LCCA of Buildings Compares execution options Technically equally appropriate Different costs Takes into account the whole life-cycle of a building Implemented early on, during concept planning and design Radical changes possible Main purpose is cost-efficiency, not environmental effects Extent of study may vary

Tools Calculation software Process manuals, guidelines, principles Reduce time and effort Computation Documentation Process manuals, guidelines, principles Depending on preferences and interests of companies and agents Results are a collection of alternatives Comparing options for most cost-effective result Uncertainty of input values has an effect on the outcome values

Methods Pay-back Discounted pay-back Many quantitative techniques have been developed for analyzing life cycle costing of a building. These techniques can be used as a guide in choosing between alternative options in design Optimal solutions are often something in between these two main categories Pay-back This is one of the most used and trusted method because of its simplicity in calculations and interpretation. Used measure in this method is simply time it takes for return of initial investment Discounted pay-back In discounted pay-back method we consider time-value of money. This means that value of given sum changes over time. For example 100$ today is more valuable than 100$ in 5 years.

Methods Net present value (NPV) Method of net present value revolves around calculating NPV for every mutually exclusive investment choice

Processes

Steps Identify Alternatives Define Constant Parameters Identify Costs Consider alternatives which bring value for each project participant and end user Define Constant Parameters Time period and discount rate Identify Costs Operating expenditures (OPEX) and Capital expenditures (CAPEX) Generate LCCs for Each Alternative Evaluate all project alternatives using the same time period and discount rate Performe a LCCA Comparison Compare the net present value (Sum of cash flow) of each alternative Compare benefit-to-cost -ratio of best alternatives in order to select the most cost- effective options for the project budget

Example: Life-cycle costs of wooden windows Building costs Cost per unit (390€/m2) Proportion for operating and joint costs (15%) Reserve fo rise of the costs (2%) Profit and builder's costs (10%) Maintenance costs Painting every 8 years (137 €/m2) Reconditioning every 16 years (350 €/m2) Renovating every 40 years Current value with 40-year time period and 10% rate of interest:

Example: Life-cycle costs of wooden windows Operation costs Heat transfer through the windows (U-value 1,4 W/m2K): Cost of heating energy (0,077€/kWh): Current value with 40-year time period and 10% rate of interest: Total costs Life-cycle costs of wooden windows are:

Country specific variations LCCA in different countries Life cycle cost analysis programs are in principle the same in different countries Results may differ a lot from each other (the price of energy, circumstances, politics) The LCC-DATA (Intelligent Energy Europe) The LCC-DATA project aimed at easing and extending the use of Life Cycle Costs Analysis Database for in-use costs (operation, maintenance, management, energy, etc) The problem is still the lack of the use of LCC analysis. Companies also do not want to share their financial data