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LCC . YUSUF OZ FATIH BOLUKBAS HUSEYIN ANIL KARABULUT. Introduction. Why use Life Cycle Costing? Growing pressure to achieve better outcomes from assets means that ongoing operating and maintenance costs must be considered as they consume more resources over the asset’s service life.

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slide1

LCC

YUSUF OZ

FATIH BOLUKBAS

HUSEYIN ANIL KARABULUT

introduction
Introduction

Why use Life Cycle Costing?

Growing pressure to achieve better outcomes from assets means that ongoing operating and maintenance costs must be considered as they consume more resources over the asset’s service life

what is life cycle costing
What is life cycle costing?

The Life Cycle Cost (LCC) of an asset is defined as:

  • " the total cost throughout its life including planning, design, acquisition and support costs and
  • any other costs directly attributable to owning or using the asset".
life cycle costing model
Life cycle costing model

LCC model is an accounting structure containing terms and factors which enable estimation of an asset's component costs

lcc the design stage
LCC: the Design Stage

Design Service Life Planning

Existing structures: It focuses on the rest of service life, maintenance and replacement costs.

New structures: It requires some mathematical assessments of components’ service lives.

lcc the design stage7
LCC: the Design Stage

Effects to be considered:

  • Physical
  • Economical
  • Functional
  • Technological
lcc the design stage8
LCC: the Design Stage

Certainty of service life can’t be exactly determined unless all influencing factors are taken into consideration.

lcc the design stage9
LCC: the Design Stage

Design Environmental Life-cycle Assessment

  • Resource depletion
  • Waste
  • Air Pollution
  • Land Pollution
lcc the design stage10
LCC: the Design Stage

Products are required to have:

  • Waste minimization
  • Lower emission
  • Sustainability
lcc the design stage11
LCC: the Design Stage

Design step of LCC is very important with:

  • types of materials,
  • the quality of the design,
  • contracting and procurement method
  • Operating maintenance and rehabilitation costs
lcc the design stage12
LCC: the Design Stage

Framework for LCC budget estimation covers these steps:

  • Understanding client objectives
  • Defining cost breakdown structure (CBS)
  • Developing LCC assumptions
  • Budgeting for LCC risks
  • Data collection
  • LCC budget estimate calculation
lcc the design stage13
LCC: the Design Stage

Risk analysis and management

General risks:

  • Political risks
  • Economical risks
  • Environmental risks
  • Social risks
lcc the design stage14
LCC: the Design Stage

Design project specific risks:

  • project finance,
  • design processes,
  • costing and estimation processes
  • preconstruction decision making
  • construction and operation processes
lcc the design stage15
LCC: the Design Stage

Design risk response measures:

  • risk avoidance: taking less risky decisions
  • risk reduction: allocating additional resources
  • risk retention: insurances
  • risk transfer: transfer obtained risky situation for experts of it
data required for lcc calculation
DATA REQUIRED FOR LCC CALCULATION
  • Occupancy Data
  • Occupancy profile
  • Functionality
  • Hours of use
  • Particular feature
  • Cost Data
  • Acquisition cost
  • Capital cost, taxes
  • Inflation, discount rate
  • Management, operating, replacement, cleaning, maintenance cost etc.
  • Physical Data
  • Superficial floor area
  • Window area
  • Types of heating systems
  • Functional areas
  • Walls and ceilings
  • Number of occupants

Types of Life cycle data

  • Performance Data
  • Maintenance cycles
  • Thermal conductivity
  • Cleaning cycles
  • Occupancy time and gas
  • Quality Data
  • Condition of sanitary fittings
  • Pipe work furnishing
  • Fabric road surfacing
evaluation of lcc methods
EVALUATION OF LCC METHODS
  • Simple payback
  • Discount payback method (DPP)
  • Net present value (NPV)
  • Equivalent annual cost (ECA)
  • Internal rate of return (IRR)
  • Net saving (NS)
simple payback
SIMPLE PAYBACK
  • What does it calculate

Calculate the time required to return the initial investment.

The investment with the shortest pay-back time is the most

profitable one

  • Advantage

Quick and easy calculation. Result easy to interpret

  • Disadvantage

Does not take inflation, interest or cash flow into account

discount payback method
DISCOUNT PAYBACK METHOD
  • What does it calculate

Basically the same as the simple payback method, it justtakes the time value into account

  • Advantage

Takes the time value ofmoney into account

  • Disadvantage

Ignores all cash flow outsidethe payback period

net present value npv
NET PRESENT VALUE(NPV)
  • What does it calculate

NPV is the result of the application of discount factors, based on a required rate of return to each years projected cash flow, both in and out, so that the cash flows are discounted to present value.

  • Advantage

Takes the time value of money into account. Generates the return equal to the market rate of interest. It use all available data

  • Disadvantage

Not usable when the comparing alternatives have different life length. Not easy to interpret

equivalent annual cost eca
EQUIVALENT ANNUAL COST(ECA)
  • What does it calculate

This method express the one time NPV of an alternative asa uniform equivalent annual cost

  • Advantage

Different alternatives withdifferent lifes length can becompared

  • Disadvantage

Just gives an averagenumber. It does not indicatethe actual coast during eachyear of the LCC

internal rate of return irr
INTERNAL RATE OF RETURN(IRR)
  • What does it calculate

It is possible tocalculate the test discount rate that will generate an NPV ofzero. The alternative with the highest IRR is the bestalternative

  • Advantage

Result get presented inpercent which gives anobvious interpretation

  • Disadvantage

Calculations need a trail anderror procedure. IRR can bejust calculated if theinvestments will generate anincome

net saving ns
NET SAVING(NS)
  • What does it calculate

The NS is calculated as the difference between the present worth of the income generated by an investment and the amount invested.

  • Advantage

Easily understood investment appraisal technique

  • Disadvantage

NS can be only use if the investment generates an income

net present value npv24
NET PRESENT VALUE(NPV)
  • The most suitable approach for LCC in the construction industry is the net present value (NPV) method.

NPV = C + R – S + A + M + E

C = investment costs

R = replacement costs

S = the resale value at the end of study period

A = annually recurring operating, maintenance and repair costs (except energy costs)

M = non-annually recurring operating, maintenance and repair cost (except energy costs)

E = energy costs

references
REFERENCES
  • Whole Life-cycle Costing, Abdelmalim Boussabaine and Richard Kirkham, 2004
  • http://www.treasury.nsw.gov.au/__data/assets/pdf_file/0005/5099/life_cycle_costings.pdf