E
Service E
Life Cycle Costing

# The lowest capital cost
is rarely the lowest
whole-life cost.

14

Value engineering that only looks at capital cost transfers the saving onto the operator.

Life Cycle Cost Analysis evaluates the full financial consequence of a design decision, covering capital, energy, water, maintenance, replacement, operation and residual value, discounted to present value over a defined study period.

It gives the client an objective basis for choosing between alternatives, and gives the design team a defence for the specification that performs, expressed in the terms the decision is actually made in.

Cost components assessed

- Initial capital cost
- Energy cost
- Water cost
- Maintenance cost
- Replacement cost
- Operational cost
- Residual value
- Discounted cash flow
- Net Present Value
- Payback analysis
- Alternative design comparison
- Sensitivity & scenario testing

Basis
ISO 15686-5 NPV / discounted cash flow Defined study period Sensitivity analysis
Fig. 14.1 · Indicative whole-life cost composition. Capital cost is typically under a third of the total. Illustrative values.
Parameters that decide the answer
Study period

Set to the client's holding period or the asset's design life. A shorter period favours low capital cost.

Discount rate

The client's cost of capital. A higher rate discounts future savings and favours deferral.

Escalation

Assumed movement in energy, water and labour cost over the period, tested for sensitivity.

Component life

Expected service life and replacement cycle of each system, and the residual value at the end.

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E · Life Cycle Costing 14