Life Cycle Cost: Category, Costing Technique, and Application

Reading time: 1 minute

Life cycle cost (LCC) is defined as the cost of an asset or its parts throughout its life cycle while fulfilling the required performance.

Whole life cost (WLC) is the total of all significant and relevant initial and future costs and benefits of an asset throughout its life cycle while fulfilling the performance requirements.

Life cycle costing is the process of systematic economic evaluation of life cycle costs over a period of analysis, as defined in the agreed scope.
Whole life costing is the process of systematic economic consideration of all whole life costs and benefits over a period of analysis, as defined in the agreed scope.

The above definitions are extracted from BS ISO 15686-5.

Difference between Life Cycle Costing and Whole Life Costing

Whole life costs include life cycle costs plus non-construction costs such as site costs, financing costs, rental costs, etc., and incomes such as income from sales, loss of income, etc. Therefore, whole life costs relate to the overall development, whereas life cycle costs relate only to the building. 

Categories of Life Cycle Cost

Life cycle costs include several items, which may be classified in various ways. The figure below illustrates the costs associated with each category.

1. Construction Cost

Construction costs are further divided into two categories:

A. Construction Works Costs

This cost incorporates

• building works and services
• external works
• furniture, fittings, and equipment which the client will maintain
• specialist contractors and artists.

B. Other Construction-Related Costs

These costs are generated during the initial construction phase, but the client will not incur any subsequent life cycle costs. These costs include:

• Site-enabling works such as demolition, site clearance, and land remediation.
• Consultancy fees for the design team – generally architect, services consultants, structural engineers, and quantity surveyors.
• Planning and building regulation fees.
• Roads that will be adopted will not be subject to future maintenance by the client.
• Furniture, fittings, and equipment will be maintained by the occupier or user of the building.

2. Maintenance Costs

Maintenance cost includes any work undertaken to prolong the life of a building or part thereof. The following diagram illustrates the typical distribution of maintenance expenditure in a modern air-conditioned office building. This shows that 66% of the total expenditure relates to services installations.

Maintenance cost includes:

1. repairs to a component (e.g., boiler)
2. repairs to finishes (e.g., floor finishes, wall finishes, ceiling finishes)
3. regular servicing (e.g., heating or air-conditioning installations).

When repairs are no longer viable, a replacement will be required, for example:

1. replace boiler
2. replace roof tiles.

Other costs to be considered in the maintenance cost category are:

1. Refurbishment, alteration, and adaptation costs.
2. Redecoration.
3. Unscheduled replacement, repairs, and maintenance costs.
4. Ground maintenance.
5. Costs or income relating to disposal of replaced components and parts.
6. Inspections carried out as part of the maintenance contract.

3. Operation Costs

The operation costs to be considered include:

1. Internal and external cleaning costs for windows and floors. 
2. Fuel costs
   • Environmental energy costs, including heating, lighting, ventilation, fuel, and power.
   • Communication energy costs, including power for lifts, escalators, and conveyors.
   • Other energy costs: electric and gas power for purposes other than the above, along with energy for hot water and cooking.
3. Water and drainage charges.
4. Administrative costs:
   • Property management (e.g., maintenance manager, clerical staff, etc.)
   • staff engaged in servicing the building (i.e., those who help the building to function efficiently (caretaker, security staff, etc.))
5. Waste management and disposal.
6. Insurance.
   Most building owners have insurance for fire and theft. There may also be special insurance against breakdown for lifts, boilers, sprinklers, etc. This should be identified separately and will be allocated to the appropriate installation.

4. Occupancy Costs

The types of occupancy costs included will depend on the use of the building. There is an extensive list of the types of occupancy costs that can be included. A few examples are given below:

1. Internal moves
2. ICT and IT services
3. Switchboard/Telephone services
4. Catering and Hospitality

5. End-of-Life Costs

This category relates to costs payable and credits accruing at the end of the analysis period. End-of-life does not necessarily mean that the building will serve no future purpose and will be demolished. Rather, the end of life should be regarded as the end of the study period of the analysis.

1. Disposal inspections.
2. Demolition. 

Any costs associated with landfill, recycling, or disposal must be included.

1. Reinstatement to meet the contractual requirements. An example where this is likely to be required is in PFI projects.
2. The residual value of the building and/or site can also be taken into account. 

Life Cycle Costing Techniques

The different stages in life cycle costing are:

1. Life Cycle Cost Analysis

The collection and analysis of historic data are connected with the actual costs of occupying a building. Additional data such as physical performance and other data may be required, e.g., areas, physical condition, temperature levels. The collection and analysis of data cost money. Therefore, the need for this on a commercial basis must be justified.

2. Life Cycle Cost Management

Collecting data about other buildings or the client's building does not benefit the client. Most clients wish to obtain value for money. Life cycle cost management involves planning and controlling occupancy costs throughout the client's occupancy to obtain the greatest value for the client.

3. Life Cycle Cost Planning

It involves using life cycle cost analysis to predict future costs. It also includes planning the timing of work and expenditure on a building. When alternative techniques or components are available, they should be evaluated, and choices shall be made so that the client obtains maximum benefit.

Planning should also take into account the effect of performance and qualitative alternatives, for example:

• The effect  of reducing the average temperature inside the building during winter by, say, 2°C;
• The type and quality of decoration may affect the occupants' morale and/or output.

Like most planning forms, the plan produced should not be too rigid. Short-term plans need to be in considerable detail, but longer-term plans (e.g., the fully functional life plan) will generally be drawn up. They should be updated at intervals to consider changing circumstances and environmental changes.

Application of Life Cycle Cost

The applications of life cycle costing are listed below:

1. To compare total costs of alternative design components options over an agreed period.
2. To compare alternatives for whole buildings:
   • Two different designs. These might be different designs using similar techniques or comparing different constructional techniques, e.g., traditional and prefabricated construction.
   • Refurbish or rebuild (on current or new site)
   • Refurbish the existing buildings or move to an alternative building.
   • Extend or adapt existing building.
3. To establish the most cost-effective program for maintenance and replacement work.
4. To provide a cash flow prediction over an agreed period. This also can be for an individual component of a building or the whole building.
5. Before the handover of the completed building, the LCC plan is used to prepare a cost-in-use budget, which the client will use in financial planning for future maintenance costs.

FAQs

Read More

Rising Energy Costs to Bring Construction Inflation

What is the Cost of Quality in Construction?

What is Activity-Based Costing (ABC)?