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Outline. What is life cycle costing?Why should we use life cycle costing?ExamplesBenefits of life cycle costingLife cycle costing in constructionSummary. What is Life Cycle Costing?. LCC is a technique used to estimate the total cost of ownership. It allows comparative cost assessments to be
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2. Outline What is life cycle costing?
Why should we use life cycle costing?
Examples
Benefits of life cycle costing
Life cycle costing in construction
Summary
3. What is Life Cycle Costing? LCC is a technique used to estimate the total cost of ownership.
It allows comparative cost assessments to be made over a specific period of time, taking into account relevant economic factors both in terms of initial capital costs and future operational and asset replacement cost.
4. Defining LCC Other terms in common usage:
Total Cost of Ownership
Whole Life Costing = a wider concept – see construction
Whole Life Value
‘Whole Life Value Thinking’
Through Life Cost (especially in defence)
5. Why should we use LCC? The most common misconception about GPP is that green products cost more.
However, upon closer inspection, this does not necessarily hold true.
6. Why should we use LCC?
7. Using LCC If contracting authorities wish to ascertain which products are most cost effective for them they need to apply LCC approaches in their procurement decisions.
This means comparing not just the initial purchase price of a product, but all future costs as well:
Usage costs (energy/water consumption, consumables such as ink or paper)
Maintenance costs
Disposal costs/resale value
8. Examples of LCC Price of compact fluorescent lamps (CFLs) is about €10 each.
These lamps are more expensive than conventional incandescent bulbs, but they last 10 times longer and use only a quarter of the electricity incandescent bulbs use.
Therefore they offer savings of more than €40 in utility bills during their useful life.
9. Examples of LCC When the environmental authorities in Hamburg, Germany, substituted two old inefficient lamps with one energy-efficient lamp in 300 public buildings, they reduced the annual electricity consumption by approx. 4.5 million kWh (an equivalent of approx. 2,700 t of CO2 emissions).
Assuming a price of 5 cents per kWh, this equates to a saving of €225,000 on Hamburg's electricity bill (2).
10. Tools for LCC A number of guidance papers produced in the Member States for use by government departments procuring construction works and services.
LCC software and toolkits
Scope expanding:
Carbon emissions
Other emissions
11. LCC in Construction Running costs may constitute up to 85% of total costs
On same scale, design costs are likely to be 0.3% to 0.5% of lifetime costs
It is through the design process that the largest impact can be made on the 85% figure
1-5-200 principle
So LCC should be a standard procedure for construction work
12. LCC in Construction
13. Benefits of using LCC Typical benefits can include:
Greater transparency of future costs
Improved awareness of total costs
Evaluation of competing options
Better forecasting
Ability to plan for future expenditure
14. LCC Methodology for Construction ISO standard:
BS ISO 15686-5: Life cycle costing
Standardized Methodology of Life Cycle Costing (SMLCC) for Construction Procurement
Life cycle cost is ‘cost of an asset, or its parts throughout its life cycle, while fulfilling the performance requirements’ (BS ISO 15686-5, 3.1.1.7)
15. LCC Data for Construction
16. Use of LCC Study by International Institute for Sustainable Development, published 2009
“Life Cycle Costing: A Question of Value”
Many procurers using LCC as a decision-making tool, but not systematically
Need to use LCC thinking at higher level, to inform strategic decision-making process
17. Summary What is life cycle costing?
Why should we use life cycle costing?
Examples
Benefits of life cycle costing
Life cycle costing in construction