Life cycle cost for construction

Introduction

According to Ozsariyildiz and Tolman (54), the construction industry is facing increased demands from society. Construction clients ask for high quality building, lower cost and shorter lead-time. The clients, who have to pay the bill, have actually very little influence over time, cost and quality. Buildings represent a large and long-lasting investment in financial terms as well as in other resources(Flanagan Jewell 45). In cold climate regions we spend a large amount of our time in buildings. The indoor environment of a building is therefore very important to us as it affects our wellbeing and health. Improvements of lifetime quality and cost effectiveness of buildings is consequently of common interest for the owner, the user and society. Life cycle cost (LCC) for buildings is therefore an important tool for involving the construction client better in early stage design decisions. However, regardless of its importance, life cycle costing has found limited application so far (Bakis Kagiouglou Aouad Amaratunga Kishk Al-Hajj 101-104). An office building will consume about three times its initial capital cost over a 25 year period, but still far more attention is paid to the initial capital cost (Ozsariyildiz Tolman 54). It should be considered that higher production costs can decrease the total LCC for a building. As stated by Bakis et al it is particularly important to show the relation between the design choices and the resulting lifetime cost (i.e. energy, maintenance, and operation cleaning). 

LIFE CYCLE COST

Life cycle cost is the total cost of ownership of machinery and equipment, including its cost of acquisition, operation, maintenance, conversion, and/or decommission (Abernethy 78-82). LCC are summations of cost estimates from inception to disposal for both equipment and projects as determined by an analytical study and estimate of total costs experienced in annual time increments during the project life with consideration for the time value of money. The objective of LCC analysis is to choose the most cost effective approach from a series of alternatives (note alternatives is a plural word) to achieve the lowest long-term cost of ownership. LCC is an economic model over the project life span. Usually the cost of operation, maintenance, and disposal costs exceed all other first costs many times over (supporting costs are often 2-20 times greater than the initial procurement costs). The best balance among cost elements is achieved when the total LCC is minimized (Raymond Sterner 368-375). As with most engineering tools, LCC provides best results when both engineering art and science are merged with good judgment to build a sound business case for action. Businesses must summarize LCC results in net present value (NPV) format considering depreciation, taxes and the time value of money. Government organizations do not require inclusion of depreciation or taxes for LCC decisions but they must consider the time value of money. LCC helps change provincial perspectives for business issues with emphasis on enhancing economic competitiveness by working for the lowest long term cost of ownership which is not an easy answer to obtain. Consider these typical problems and conflicts observed in most companies(Bull 2-4):

1. Project Engineering wants to minimize capital costs as the only criteria,

2. Maintenance Engineering wants to minimize repair hours as ...