Life cycle costing Flashcards
What is life cycle costing?
Techniques to evaluate life cycle costs
What are life cycle costs?
- The costs that will be incurred over a defined period of operating and maintaining a building e.g. repair, maintenance, replacement, cleaning, decorating, services provision
How do they differ from whole life costs?
- It is on a whole building level rather than looking at individual elements
- The collation of all the capital and life cycle costs for individual elements plus their end of life costs and the related project non-construction costs (site / finance) as well as the revenues associated with the project
What sort of clients might be particularly interested in life cycle costing?
- Government clients – concerned with overall value for money
- PFI projects
- Owner-occupiers
- Clients aiming to incorporate sustainable technologies
What are the advantages of life cycle costing?
a) Allows consideration of the long term implications of a decision
b) Enables informed decisions to be made on material selection
c) This can result in lower operational, maintenance and replacement costs
d) Can be used to plan future maintenance requirements – flexible spaces, easier access
e) Can be used to judge sustainability in money terms
What are the disadvantages?
a) Future costs are optional and the costs of maintenance can always be deferred
b) Components are not always replaced due to end of life – style, fashion etc instead – almost impossible to assess this at design stage
c) Costs of defects caused by bad workmanship / design faults cannot be predicted
d) Uncertainty of available data – hard to predict life spans, future inflation and maintenance requirements over long periods
e) The client may be selling the building after it is constructed
f) Choosing the wrong discount rate can render the exercise totally useless
What costs should be considered in life cycle costing?
a) Capital costs
b) Operational costs
c) Maintenance costs
d) Replacement costs
e) Disposal costs
What information is needed to be able to calculate the life cycle costs?
a) Capital cost of the element
b) Maintenance requirements of the element
c) Life span of the element – when it will be replaced
d) Replacement cost of the element
e) Disposal costs of the element
Where can you get information about maintenance costs?
a) Building Maintenance Cost Information Service (BMCIS) – part of BCIS
b) From sub contractors
c) From in house data
What sort of information does BMCIS provide?
- It is a historic body of information on maintenance costs
- It publishes quarterly cost briefings on current trends
- It publishes indices for redecoration, cleaning and maintenance costs
What techniques can be used to evaluate life cycle costs of different materials?
- Net present values
- Payback period
What is net present value?
- Where future costs are discounted to present values
How does the net present value method work?
- It involves the comparison of the net present value of alternative options
- It is useful at the design stage
- Future life cycle costs – on maintenance / replacement etc – are discounted to present values
What variable would affect the outcome of the NPV method?
- The time periods assumed for replacement
- The assumed maintenance and replacement costs
- The discount rate used
How does the payback period method work?
- It judges an investment in terms of the time period over which the invested sum is returned in revenue
- The increased expenditure on a higher quality component is viewed as the ‘investment’ and the savings provided in the form of future costs is viewed as the ‘revenue’
- The best option would be the one that repaid the investment in the shortest time
