Lifecycle costing Flashcards
What is lifecycle costing?
Single sum representing capital cost & future cash flows
Reviews what needs to be done, when, at what cost
Reviews cost performance of works where there are alternative objectives such as lower energy expenditure
Relevant costs over a period of time
What documentation sets out processes and requirements for lifecycle costing?
- RICS GN Lifecycle costing
- Follows principles set out in BCIS Standardised Method of Lifecycle Costing for Construction Procurement
- Option appraisals for public organisations - HM Green Book: Appraisal and Evaluation in Central Gov
- BS/ISO 1586-5
What is considered in Lifecycle costs?
CROME
- Construction Cost
- Renewal Cost
- Operation / Occupancy Cost (UK only for occupancy costs)
- Maintenance Costs
- End of life Costs
Considers environmental costs at construction / renewal and maintenance / end of life
What is in Whole life costs?
- Lifecycle cost
- Non-construction costs e.g. land, income, external costs (those not borne by construction contract such as tenants)
- Income
- Externalities
How do LCC benefit clients?
- Support with cashflow predictions
- Option appraisals evaluated over their whole life
- Total cost of ownership / occupation optimised by balancing CAPEX ad OPEX
- Encourages analysis of business needs & communicates with the project team
- Tender appraisals
What is a cashflow LCC?
Cashflow
- Analysis of expenditure over PoA
- Done as part of Build Own Operate Transfer (BOOT) / PPP / PFI
Public-Private Initiative / Private Finance Initiative
What is an Option Appraisal LCC?
- Compare solutions to a client problem on a cost basis only
- Inform tender appraisal exercises
- Uses a discount factor to bring future costs to present value
- Agree the issue with the client at the beginning as sets out extent of including capital, maintenance, operation, occupancy, end of life and non-construction costs are included
What is a Tender Appraisal LCC?
- Similar to Option Appraisal
- Tenderer will receive information on importance of capital vs opex spend, PoA, Discount Rate
What types of LCC studies are you aware of?
- Cashflow
- Option appraisal (which is used to inform tender appraisals)
What are the 4 steps of carrying out a LCC?
- Defining brief for analysis of LCC at each stage and the level of detail needed for the client
- Analysis of the problem
- Structuring / doing calculations
- Validating & interpreting results
What is NPV?
- Net Present Value - total present day value worth of future cashflow discounted at a given interest rate
What is PV?
- Present Value - present day worth of a future cost discounted at a given interest rate
What is AEV?
Annual Equivalent Value
- Loss suffered by investing sum of money in a building rather than a bank
What is a discount rate in LCC?
Interest rate used to bring future costs to a comparable time base
What is a base date in LCC?
Point where LCC analysis starts from and where all future costs are discounted to
What is a nominal cost?
Estimated future amount to be paid including estimated changes in price due to inflation, deflation etc
Usually done as part of sensitivity analysis
What levels of LCC are there?
- Component - single manufactured product
- System - e.g central heating = boiler, pump, thermostat, pipes, radiators
- Elemental - part of construction that performs same function irrespective of parts
- Cluster - number of elements combined
- Single asset / whole building
- Multi asset / portfolio - considers options for the development of a portfolio
What is included in Construction costs of LCC?
- Site costs e.g. legal / stamp duty (not site acquisition)
- Finance charges
- Professional fee’s
- Construction costs
- Planning costs
What is included in Maintenance costs of LCC?
- Redecoration
- Periodic maintenance
- Planned & preventative maintenance
- Unscheduled corrective & response maintenance
What is included in Operation Costs of LCC?
- Often excluded from scope
- IT
- Rent
- Insurances
What is included in the Occupancy costs of LCC?
- Additional services within soft facilities management that support occupiers explicit operations
e.g. IT support staff or Lab technicians
Uk include them in LCC, rest of world these are part of WLC
What is included in End of Life costs of LCC?
- Disposal, demolition, end of life incomes
- Residual value - monetary value assigned to asset at end of life
- Terminal value - scrap value of component at point of replacement
What is the Period of Analysis?
- Determined by client
- Where environmental impact is being measured, usually to end of life
- Considers - commercial, legal and tech changes
- 30+ years should be treated with caution
- Public sector, Treasury determine that 30+ years and the advised discount rate is changed
What are the lengths of time a building satisfies classified as?
- Economic life - where occupation is the least costly option
- Functional - service purpose
- Legal life - satisfies statutory requirements
- Physical life -
- Social life - where replacement is dictated for reasons other than economic considerations
- Technological life - no longer technically superior to alternative
How do LCC’s fit in to sustainability criteria?
LEED - introduced desirability for LCC calculations
BREEAM - advocates use with several PoA
Where can you get LCC cost data from?
Historical data - BCIS, HAPM Component Life Manuals (SPONS)
Unstructured - FM, office managers
Manufacturers / suppliers
What should be included in a LCC report?
- Agreed statement for PoA, discount rate and base date
- Primary reason
- Summary of results
- Account of assumptions including sensitivity analysis
What variables should be considered for LCC?
PoA - by client
Discount rate - set for public sector
Cycles / intervals between maintenance activities
Unit rates for work
Sensitivity analysis - should be kept separately
What is sensitivity analysis in LCC?
Associated with risk and is aligned to changing variables of LCC
E.g. key drivers such as PoA, discount rate
