Life Cycle Cost Analysis Modelfor Sustainable Buildings

presented by

Prof Robert Tiong

Associate Professor

School of Civil & Environmental Engineering

Dr Meghdad Attarzadeh

Research Fellow

School of Civil & Environmental Engineering

Date of Presentation: 27 October 2015

Introduction

• Life-cycle cost analysis (LCCA) is a method for

assessing the total cost of asset over its operating

life, e.g. acquisition costs & running costs

• LCCA is essential to effective decision-making– Identifies total cost rather than concentrating on initial capital costs, Initial capital cost

may represent < 50% of total cost

– Facilitates’ effective choice between alternative methods of achieving stated objective,

e.g. choosing btw 2 systems

PlanningDesign and

Construction

Operation and

maintenance

DecommissioningCommissioning

Introduction

• Life Cycle Cost (LCC) is

– A management tool that details current operating costs of

assets.

– An Economic analysis procedure that uses engineering

inputs,

– Compares alternatives w/all significant costs,

– Expresses results in equivalent $s (present worth).

• LCC identifies opportunity of reducing operating

costs, by changing operating practice or relevant

system

Introduction

Rationale for a Whole Life perspective

• Managers/ developers may only see top part of

iceberg above sea (initial costs), in danger of hitting

bigger rocks under sea in larger long running costs

Original Asset Cost,

Capital cost

RehabilitationRepairs EquipmentSpares

EnergyChemicalCosts

MaintenanceCosts

DepreciationReplacementRenewal & DisposalCosts

AdministrationCosts

OperatingCosts

Source: Flanagan & Norman (1978)

TOTAL LIFE CYCLE COSTS

(The Professional View)

Single Focus

PAST PRACTICE

(An Inappropriate View)

Introduction

Types of costs considered in LCCA

Initial Costs—Purchase, Acquisition, Construction Costs

Fuel Costs

Operation, Maintenance, and Repair Costs

Replacement Costs

Residual Values—Resale or Salvage Values or Disposal Costs

Finance Charges—Loan Interest Payments

Non-Monetary Benefits or Costs

Life Cycle

Cost Assessment

Disposal/

Rationalisation

Planning/

Auditing/

Review

Design/

Construction/

Acquisition

Operations/

Maintenance

Condition

Monitoring

Renewal/

Rehabilitation

Introduction

LCCA Calculations

LCC=I + Repl — Res + E + W + OM&R + O

LCC = Total LCC in present-value (PV)dollars

I = PV investment costs (if incurred atbase date, they need not be discounted)

Repl =PV capital replacement costs Res =PV residual value (resale value,

salvage value) less disposal costs E =PV of energy costs W =PV of water costs OM&R =PV of non-fuel operating,

maintenance and repair costs O =PV of other costs

Introduction

Parameters used in LCCA

Initial cost of construction Work costs for each

maintenance operation Defect occurrence cycle

requiring maintenance operationwith the expected life span of thesystem

Detail of how each operation willaffect the users of the system-socially and environmentally

Management cost necessary foreach maintenance operation, fore.g., in road maintenance

Appropriate discount rate toconvert the above costs topresent value (Inflation rate etc.)

Life Cycle Cost Elements

Life-Cycle Cost Analysis (LCCA) for

Buildings

• A method of economic analysis that sums up, over a

given study period, all relevant costs of a building,

building system, or building component, in present

worth (PW) dollars, today’s dollar.

Life Cycle Cost Components

Local school life cycle cost

Life-Cycle Cost Analysis (LCCA) for

Buildings

When to implement LCCA

Owner’s

Project

Definition

Preliminary

Engineering DesignDetailed

Engineering Design

Procurement

Of Spl.

Equip/Mats

Contract

Construction

Works

Low Low

HighHigh

Ability to influence project

quality, cost, and scheduleCost to implement changes in project quality, cost,

and schedule

Life-Cycle Cost Analysis (LCCA) for

Buildings

Uncertainty Assessment

Need for uncertainty assessment– There may be some uncertainty associated with the LCC results

– This is because LCCA is usually performed early in the design process

when only estimates of costs and savings are available, rather than

certain dollar amounts. Uncertainty in input values means that actual

outcomes may differ from estimated outcomes

Methods of uncertainty assessment– Deterministic techniques. E.g. Sensitivity analysis, Breakeven analysis

– Probabilistic techniques, Monte Carlo simulation

Long Term Renewal Planning for

Buildings

Facility owners need to know current

financial position, future commitments &

liabilities, e.g. cash flow to sustain levels of

service

• Plan for renewal: renewal programme

with details on nature & timing of works

• Long Term renewal program: asset

managers demonstrate cash flow

requirements over planning period to

allow for ‘peaks’ & ‘troughs’

• Renewal annuity plan- Org ameliorate

over ‘brick-wall’ periods w/intensive

renewal requirements by bldg up asset

restoration reserve during period of low

renewal requirements

• More than just Maintenance

Life-Cycle Cost Assessment (LCCA)

Application for Buildings

LCCA approach as an Effective Management Tool used by:

• Decision makers (developers, landlords) – evaluate development

option best ROI

• Designers - develop concepts & refine them into finished design

desired LCC

• Asset managers - plan/monitor O&M strategy, performance monitoring

for future

• Financiers - funding allocation maximizes benefits from depreciation

allowances, deductible expenses, etc.

Aim: To understand the comprehensive views of lifetime cost of the structure Need

for uncertainty assessment

To broaden the decision base for management Maintenance budget planning

Prioritizing the maintenance programs

Performance-based evaluation of structures

Life-Cycle Cost Assessment (LCCA)

Application

Example of Application

LCCA in Public Sector Comparator (PSC)

PSC is used by government to make decisions by testing whether a

private investment proposal offers value for money in comparison with

the most efficient form of public procurement

It is often used to ensure that value for money is achieved when a

public-private partnership (PPP) is undertaken

The PSC is– expressed in terms of net present value (NPV)

– based on the recent actual public sector method of providing that defined

output

– taking full account for risks which would be encountered by that style of

procurement

Life-Cycle Cost Assessment (LCCA)

Application

Example of Application (Cont’d)LCCA in Public Sector Comparator (PSC) – Cont’d

Structure and elements of PSC– The Overview

– Basic capital costs

– Basic operating costs

– Third party revenues

– Property values

– Risk matrix

– Discounted cash flow

– Sensitivity analysis

– Appendix

Functions of LCCA– Provide better insight into lifetime economics of structures– Help to plan effective O&M programs– Help to formulate proactive budget plan– An effective management tool to ensure value for money

Life-Cycle Cost Model

Life-Cycle Cost Model

Life-Cycle Cost Model

Sustainable Buildings

Definition

According to ASTM International, a sustainable building or green building is onethat: "provides the specified building performance requirements while minimisingdisturbance to and improving the functioning of local, regional and globalecosystems both during and after its construction and specified service life“

A sustainable or green building produces net zero or smaller carbon footprint orreduces the other harmful emissions. It is a building which does not have adverseeffects on the ecological balance. These structures don’t have a negative impact onthe environment as they generate their own energy from solar energy, wind energyetc.

Aims

A sustainable building aims to achieve efficient use of resources such as water andenergy, while providing a high quality indoor environment in terms of health, safetyand comfort

Conceptual Drawing of a green

building

Sustainable Buildings

Principles

CONVENTIONAL

BUILDINGS

GREEN

BUILDINGS

Sustainable Building Design

• Energy efficiency

GREEN LIGHTING

Sustainable Buildings

Initial Cost of Constructing Sustainable Buildings

In a report by Kats (2003)

“Green Building Costs and

Financial Benefits”, 33 green

buildings were studied and it

was found that the average

premium for these green

buildings is about 2% more than

the cost of conventional design

The majority of this cost is due

to the increased architectural

and engineering design time,

modeling costs and time

necessary to integrate

sustainable building practices

into projects

Sustainable Buildings

Economic Benefits

In a review of 33 California state green buildings, it was found that aminimal upfront investment of about two percent of construction coststypically yields life-cycle savings of over ten times the initial investment(The Costs and Financial Benefits of Green Buildings: A Report toCalifornia’s Sustainable Building Task Force (2003) by G. Kats, L.Alevantis, A. Berman, E. Mills, J. Perlman)

Sustainable design does not have to increase costs and yieldseconomic, social, and environmental benefits to building owners andsociety(The Business Case for Sustainable Design in Federal Facilities(2003) by U.S. Department of Energy, Federal Energy ManagementProgram (FEMP) )

Importance of LCCA in the

Sustainability context

Justification for the Green Premium (if any)

It is widely believed that constructing a sustainablebuilding costs more than constructing aconventional one. However, it is also claimed thatthe costs of running a sustainable building may belower in the long run.

LCCA which aims to capture all the costs that atthe various stages of a building life, including theinitial costs and running costs is therefore helpfulin deciding whether the running costs offset thehigher initial costs in the long-run.

Importance of LCCA in the

Sustainability context

A Tool for achieving Building Sustainability

LCCA can be used to assist towards achieving sustainability in

buildings in two ways.

– Firstly, LCCA is especially useful when project alternatives that fulfill the

same performance requirements, but differ with respect to initial costs

and operating costs, have to be compared in order to select the one that

maximizes net savings

– Secondly, LCCA can also be incorporated into cost planning and

analysis. This allows areas of poor performance or areas in which

additional savings can be made are identified

Therefore, LCCA can help to achieve building sustainability by

ensuring that resources are efficiently consumed at the lowest costs.

Application of LCCA towards

achieving Sustainability in Buildings

(I) Benchmarking of Life-CycleCost Parameters

Process of identifying industrybest practices

Important for establishingperformance indicators tomonitor cost effectivenessO&M program, renewal timingand performance improvement

Can be used as a proactivetool for management decisionmaking regarding O&Mactivities

Application of LCCA towards

achieving Sustainability in Buildings

(II) Development of Key Performance Indicators (KPIs) for Built Facilities

Performance-based maintenance management requires– LCC-based evaluation of performance of building components

– Establishing KPIs for setting priority for maintenance activities

– LCC-based performance monitoring procedure to ensure cost-

effectiveness of maintenance

Knowledge of LCC of different components of a building system is

very important

BCA Green Mark Scheme

Innovation in Building life cycle and

integrated design process

Certified Green Buildings and Sustainable Infrastructure by

deploying several innovations like:

Building Information Modeling (BIM) 5D Virtual Design and Construction

Pre-fabrication and Assembly

Integrated Project Delivery (IPD) Lifecycle Strategy

Cost, Risk, Performance Analysis

Engaging in Infrastructure Asset Management (IAM)

Build efficiencies by optimizing costs

BIM-Integrated Life Cycle Assessment

of Building

BIM-Integrated Life Cycle Assessment

of Building

The topics of Methodology development in BIM-Integrated LCA

BIM and Life Cycle Thinking

BIM-Integrated LCA tools

BIM-Integrated Carbon Footprint Analysis

BIM-Integrated Waste Management

BIM-Integrated Environmental Management

BIM-Integrated Supply Chain Management

International BIM-Integrated LCA Case Studies

Computer Simulation of Operation and End-of-life phases

Environmental Impacts Monitoring through BIM

Conclusion

Life cycle costs analysis (LCCA) takes into consideration all the costsincurred throughout the whole life of a building and hence can be atool for justifying the high initial costs of sustainable buildings. Inaddition, it can also be used towards achieving the long-term goal ofsustainability in buildings

However, it should be noted that buildings have both direct andindirect economic impacts that are inherent to the process of theiracquisition, construction, use, maintenance, and disposition

Direct economic impacts are those associated with the life-cyclecosts/benefits of materials, land, and labor directly attributable to thebuilding. On the other hand, indirect economic impacts are externalcosts/benefits that are indirectly impacted by the building

It should be noted that in order to advance sustainability, it isnecessary to quantify and optimize both direct and indirect economicimpacts to the greatest extent possible.

THANK YOU

Prof Robert Tiong

Dr Meghdad Attarzadeh