In the present-day, there are varieties of options to consider when acquiring a facility. Purchasing or erecting the wrong facility would cost the owning person or organization quite a fortune, especially when the facility is intended for industrial or business use. Thus, acquiring expensive facilities without considering the most cost-effective ones in the market could frustrate a project or the fortunes attributable to an investment. A Life Cycle Cost Analysis (LCCA) is an assessment conducted to determine the cost-effectiveness of owning a facility among other alternatives (Fuller, 2018) . LCCA accounts for all costs undertaken before the acquisition of a property and the cost projections expected to be incurred through the life-cycle of the facility. Particularly, these expenditures arise from acquisition, ownership, operation, maintenance, and the disposal of the purchased facility. Therefore, LCCA is used to determine which among the projects or facilities are cost-optimal for an allocated budget. This is important to enlighten investors and developers on the best facilities to prioritize on and in a quantifiable manner. In the end, it builds trust and assurance essential to embark on a project. This study will evaluate the various factors of LCCA tool, simulate a building facility life-cycle costing, and outline the importance of carrying out the analysis.
It is important to note that the initial factors of LCCA are the approaches used in the analysis. LCCA could either focus on deterministic modeling or probabilistic modeling approaches. Deterministic modeling approaches consider the cost inputs incurred through past periodical costs of a facility. When the past cost of a facility is determined, predicting the future of the facility is easy and has better precision (Dhillon, 2013). On the other hand, probabilistic modeling entails developing predictive distributions of the cost outcomes anticipated through the life-cycle of the facility. With numerical evidencing on cost projections of comparable facilities, investors can estimate expected cost probabilities of a similar facility. Notably, in the contemporary business cost estimation strategies, businesses have adopted the use of data and analytics to determine past costs of projects through conducting cost diagnostics and descriptives derivable from the market, and sequentially, these estimates are used to develop future cost probabilities through prescriptive and predictive approaches. Additionally, due to technological advances, cost data and information is stored in the cloud for easy retrieval and use by the analysts. To this end, achieving a credible LCCA is faster today compared to the past deterministic and probabilistic cost modeling techniques.
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Cost makes up the greatest factor for developing an LCCA. Even so, cost factors vary from one facility to another and may create a big challenge in determining them. This means that the cost of a building’s life cycle varies intensely with the costs of a car’s lifecycle. Therefore, life-cycle cost analysts possess great methodical skills to ensure they develop closely accurate results, which can be credibly relied upon by their clients. Consequentially, the life-cycle costs are broken into different portions which cover the initial costs and the costs anticipated through the future of the facility. For instance, to acquire a building facility, an investor incurs or anticipates costs associated with the acquisition, operation, maintenance and disposal of the building (Fuller, 2018) . Through this process, initial costs can be determined as the purchase, acquisition and construction costs. In the building’s cost context, an investor incurs land acquisition costs and the construction costs for a new facility. Thus, for the LCCA, investors would, for instance, compare a new building’s initial costs to the costs of renovating an existing building. This goes for any other LCCA of facilities in the market.
Moving on, the initial costs considered for the building would rely mostly on the alternative designs presented for the land acquisition and construction costs. Determining land designs is easier due to the comparison of land pricing market metrics, which are usually subject to the prevalent economic demand and supply. However, the building’s construction costs are not essentially reliable before the investors develop the most cost-desirable design among other alternatives. Consequentially, estimating the cost of the preferred design was earlier referred from historical data of similar existing building designs. Today, these costs can be assessed from governmental and private-owned estimation guidelines and databases. Notably, Tri-Services Parametric Estimating System (TPES), a United States company, provides a Parametric Cost Estimating System (PACES), a software application used to prepare parametric construction cost estimates, and relates them to predetermined algebraic cost estimations algorithms, which then determine the most cost-effective building facility (Fuller, 2018) . Other life-cycle costs associated with a building facility would be fuel costs, operation, maintenance and repair costs, replacement costs, residual values, finance charges, and non-monetary costs.
Undoubtedly, Life-Cycle Cost Analysis of a facility is an important process because of the risks and uncertainties associated with facility investments ( Tiwari& Tiwari, 2016). There is a need to determine the most cost-optimal options in the market before embarking on a project anticipated to be profitable in the market so that the cost associated will be worthwhile and efficient for the allocated budget. Also, LCCA is a tool that enlightens users on how to prioritize business project allocations of single business entities. Typically, project appraisal covers broader and generalized scopes of examining projects expenses and revenues to determine their economic value, but the LCCA scrutinizes the project’s most fundamental inputs, a facility. This insinuates that investors growing their businesses gradually should consider LCCA to assess the opportunity costs of the facilities they consider bringing into the business.
Conclusively, the LCCA consists of multiple cost factors which vary from one project to another and the process is quite an important procedure to undertake before owning a property. Deterministic and probabilistic cost-modeling approaches are used to develop LCCA, whereby the deterministic approaches consider the past certain costs to determine the future cost possibilities of a facility while probabilistic approaches estimates cost trends and projections associated with facility alternatives. Specific costs factors are segmented to initial costs and the consequent operational, maintenance, and disposal costs. Nonetheless, as depicted in the building facility example, determining Life-Cycle Costs of facilities could vary profoundly and depend on the referential databases considered for comparison, but gradual adjustments of the life-cycle costs are refined as the preferred facility is being established. The LCCA is an important tool to evaluate various facilities and projects options to ensure optimal cost allocation. Again, the tool enables investors to evaluate the viability of single business entities or facilities which is pivotal for the gradual growth of wealth.
References
Dhillon, B. (2013). Life cycle costing: techniques, models and applications . Routledge.
Fuller, S. (2018). Life-Cycle Cost Analysis (LCCA) | WBDG Whole Building Design Guide. Retrieved from https://www.wbdg.org/resources/life-cycle-cost-analysis-lcca
Tiwari, G. N., & Tiwari, A. (2016). Life-Cycle Cost Analysis. In Handbook of Solar Energy (pp. 671-690). Springer, Singapore.
