1. Life Cycle Costing (Practice)

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

3. 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) 

4. 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

5. 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

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

7. 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)

8. 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

9. BCIS  Component life

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

11. 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 =
30th = 370/(1+0.08)30 =
45th = 370/(1+0.08)45 =
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 = £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

12. 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 = £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

13. 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 = £185.65

14. 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

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

16. 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 = £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

17. 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 = £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

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

19. Questions?