The process of life cycle costing involves evaluating different design options, and determining the most costeffective solution to meeting system requirements woodward, 1997. The purpose and nature of the analysis however depends on the product. Whole life cycle costing wlcc is rapidly becoming the standard method for the longterm cost appraisal of buildings and civil infrastructure projects. Life cycle costing is an economic appraisal technique used to evaluate the economic performance of a green building throughout its life cycle which mainly includes. Life cycle costing for facilities download ebook pdf. The standard defines it as the process of assessing the cost of a product over its life cycle or portion thereof. Life cycle costing requires knowledge of anticipated system reliability, utilization and maintenance procedures because they help in understanding of the relationship. Lifecycle cost analysis helps fleet managers make the most out of their budget and much more.
Life cycle costs will assess the cost effectiveness of design decisions, quality of construction. Life cycle costing and risk management request pdf. Benefits of lifecycle cost analysis capital asset management. The australian and new zealand standard life cycle costing an application guide asnzs 4536. Through lcc one seeks to minimize the cost of obtaining a cer tain level of output. Whole life risk and risk responses at design stage whole. Wlc risk identification and risk response measures at designprecontract stages. Life cycle costing encompasses a great deal of uncertainty, functions of which are data imperfection.
When performed correctly, lcca enables a more accurate and less biased comparison of differing life cycle. Since its first emergence in the 1930s, lcc has been applied in many different cases worldwide, and is now a commonly used approach for example in. At one extreme lies the purely multicriteria analysis, which employs weights from a variety of sources that contain a large degree of subjective assessment. They can be used to evaluate options at all stages and are influential. Life cycle costing is methodology for the systematic economic evaluation of life cycle costs over a period of analysis, as defined in the agreed scope. Risk and risk responses that decisionmaking uncertainty in wlc can be reduced by basing choices on sound risk management principles, identifying a systematic approach to planning the postoccupancy costs 48. The prevalent market conditions have momentous influence on lcc. Decisions made during the design and construction phases of a project can have a lasting impact on the cost of operation of the facility. The general concept of a life cycle cost is not new. Lifecycle costing requires knowledge of anticipated system reliability, utilization and maintenance procedures because they help in understanding of the relationship. Whole life risk and risk responses at design stage. You will understand the concept of a life cycle asset management plan. Life cycle costing lcc, by definition, refers to an analysis technique which encom passes all costs associated with a product from its inception to its disposal. It is calculated from the beginning of a products research to its estimated date of withdrawal from the market.
Us department of defense 1970 life cycle costing procurement guide. It tracks and evaluates costing from the research and development phase of a products life, through design, manufacturing, marketingdistribution and finally customer services. Issue 3 a general appreciation for lcc is critical to change the procurement mindset from the best value for moneyto the best value across the asset life cycle. Equipment lifecycle cost analysis lcca is typically used as one component of the equipment fleet management process and allows the fleet manager to make repair,equipment replacement, and retention decisions on the basis of a given piece of equipments economic life. Us federal supply service 1978 life cycle costing in the procurement of room air conditioners.
Approach on life cycle costing lcc and its benefits. In this model, all costs from design stage to after sales support in product life cycle are considered as product costs and target cost is calculated using activity based costing method. Life cycle costingtheory, information acquisition and. Life cycle costing financial definition of life cycle costing. Whole life risk and risk responses at construction stage.
Life cycle costing is said to focus primarily on capital or fixed assets ellram, 1995. The process of lifecycle costing involves evaluating different design options, and determining the most costeffective solution to meeting system requirements woodward, 1997. Value management as an efficient risk management tool. Life cycle costing lcc as a contribution to sustainable. Without an accurate estimate of asset life cycle cost, its difficult to manage a capital asset program and yeartoyear operating and maintenance budgets.
Life cycle costing is a methodology where costs of a given asset are considered throughout its life cycle 201424eu art. A guide to whole life costing wlc 1 introduction 1. Life cycle costing includes all expenses from research and development, marketing, customer services and so forth. Request pdf life cycle costing and risk management risk and uncertainty is. Whole life costing techniques look at the big picture of expenditure and longevity of the building. It combines standard monte carlo analysis of risk drivers and a new datadriven method developed by the hoy and hudak 1994.
Specifying a comprehensive set of objectives and measures for each wlcc component. You will have seen an example of a life cycle cost analysis. Lcca is a term that highlights the cost ing aspect of life cycle assessment lcaa 28 add cost information to lca. Lifecycle costing financial definition of lifecycle costing. Heres a new approach to life cycle costing that brings activitybased costing, risk, and uncertainty into the forefront. Lifecycle costingiso 156865 as an economic assessment considering all agreed projected significant and relevant cost flows over a period. By heidi schwartz this special feature originally appeared in the july 2008 issue of todays facility manager. As a result of growing awareness of whole life costing among corporate occupants.
A life cycle costing approach din en 6030033 the six phase model of a product life in the following, the six phases model of a general product life cycle, which is the basis of the lcc measurement approach in the din norm, will be explained. What is life cycle costing life cycle costing lcc is a methodology that enables you to incorporate costs and benefits that occur over the entire life cycle of a product into your procurement decisions rather than considering the initial capital cost of a product only costs and benefits. Us department of defense 973 life cycle costing guide for system acquisition. Decisions made during the design and construction phases of a project can have a lasting impact on. Absence of accurate projections of the future cost of energy usage, operating and maintenance costs also hampers creating a long. Abstract this paper deals with the whole lifecycle costing wlcc on the example of construction industry because wlcc methods is well elaborated in this area. Life cycle costing is trying to calculate the future. Life cycle costing is concerned with optimising value for money in the ownership of physical assets by taking into consideration all the cost factors relating to the asset during its operational life. Issue 1 life cycle costing is not yet considered to be a critical component of spp. The approach permits quantification of risks throughout the entire life cycle without resorting to difficult to support subjective methods. It concludes with the directions for future work and conclusions. Lcca can also factor in uncertainty, risk, and other elements including environmental and equity considerations. For example, for a highway pavement, in addition to the initial construction cost, lcca takes into account all the.
Risk analysis in the theory of whole lifecycle costing. Whole lifecycle costing risk and risk responseshalim a. Lifecycle cost analysis lcca is a tool to determine the most costeffective option among different competing alternatives to purchase, own, operate, maintain and, finally, dispose of an object or process, when each is equally appropriate to be implemented on technical grounds. The future is unknown, but lcc encompasses a countless deal of forecasts and assumptions of the future. An integrated environment for life cycle costing in. Concepts and principles of life cycle cost lcc and. Risk and risk responses abdelhalim boussabaine, richard kirkham on. Whole life and life cycle costing view case studies. Lifecycle costing focuses on a products entire value chain from a cost perspective. Life cycle costing in construction projects a case study of a. Pdf risk assessment methods for life cycle costing in. Second, the paper empirically examines the impact of customer profiling, competitive advantage, and quality of is information on product life cycle cost analysis use in firms.
Methods for handling improbability and risk in the economic. Many companies often establish a risk management procedure in their. This paper summarises the difficulties in the application of life cycle costing lcc as a decision making tool in the construction industry on the parts of the client, the analyst and the industry practices. Boussabaine and kirham demonstrated in their book whole lifecycle costing. Life cycle costing helps a company determine whether or not a product is going to be profitable. An estimate of all expenses a company incurs and derives from a product. An integrated environment for life cycle costing in construction.
Risk and uncertainty is endemic to life cycle costing, and requires that an effective risk management system be an integral part of life cycle cost analysis. Whole lifecycle costing wlcc is rapidly becoming the standard method for the longterm cost appraisal of buildings and civil infrastructure projects. It is necessary to estimate a long time many of the above factors, such as operating costs and maintenance costs, discount rates and the inflation rate itself. This fact sheet introduces the principles of whole life costing for organisations that are new to the subject or in the early stages of working with whole life costing. Asiedu and gu 1998 on the other hand state that life cycle costing can be used for all sorts of products. Risk analysis in the theory of whole lifecycle cos ting ing. Life cycle cost analysis helps fleet managers make the most out of their budget and much more. These include the maintenance and operating costs, rate of interests, inflation, material and component prices. Initial cost remains a practical consideration, but the amount of money spent over the entire. This often results in takeovers, mergers, acquisitions and some public. Life cycle costing and calculation of value added in openlca. The basic idea behind the lifecycle hypothesis is that as people age, their objectives, financial and personal circumstances, investment knowledge, and risk tolerance change as well.
Whole of life cycle cost analysis in bridge rehabilitation report 2002005c03. In doing so, this study is one of the first to investigate the use of life cycle cost analysis. A life cycle cost management program identifies a common set of ground rules and assumptions for life cycle cost estimation. Boussabaine liverpool school of architecture and building eng. Objectives of life cycle costing life cycle costing analysis can be carried out during any phase of an assets life cycle.
Whole life costing is defined in the draft international standard, iso15686 part v see. Youll focus on future costs and learn how you can perform any type of cost management activity better than before by introducing uncertainty into models and exploiting them to the max. Pdf the paper deals with estimating the life cycle cost and the whole life cost of a building. Optimising the tradeoff between those cost factors will give the minimum life cycle cost of the asset. Whole of life cycle cost analysis in bridge rehabilitation report 2002005c03 the research described in this report was carried out by project leader dr. Life cycle costing seems still to be missing within project management practice. Life cycle costing in construction projects a case study. In this study, a model is proposed for target life cycle costing based on activity based costing.
W ith facilities budgets in most organizations tighter than ever, facility managers fms face growing pressure to maximize their investments. Life cycle cost assessment lcca systematic process for evaluating the life cycle cost of a product or service by identifying environmental consequences and assigning measures of monetary value to those consequences 5,31. With clients now demanding buildings that demonstrate value for money over the long term, wlcc has become an essential tool for those involved in the design, construction, operation and risk analysis of construction projects. Ethicsengineering concepts and principles of lcc and effectivenessethics 039. Whole life costing who should read this fact sheet. Common tools and techniques in riskuncertainty analysis. Second, since sampling techniques implicitly and repeatedly combine a random. The questionnaire responses were assigned cresswell 35 indicated that the most. The twin processes of value and risk management are fundamental to the. Risk management and life cycle costing of infrastructure project. Risk management and life cycle costing of infrastructure. Railways asset management model based on a probabilistic. Life cycle costing lcc is defined in the international organization for standardization standard, buildings and constructed assets, servicelife planning, part 5.