The Benefits of a Life-Cycle Cost Analysis
When considering total facility costs, the buck doesn’t stop with the price of acquisition. Your investment goes far beyond the money you’ll be shelling out for the price of the building. To determine what you’ll actually be paying, you’ll need a Life-Cycle Cost Analysis (LCCA).
A Life-Cycle Cost Analysis is an assessment of the total cost of facility ownership. The process includes costs associated with procuring, servicing, preventive maintenance, and operating your investment. Basically, the entire life cycle of the project — from beginning to end. Because without a cerebral approach, you could be left without a proper budget or functional facility.
A LCCA should be a first — if not the first — step in beginning a long-term project. It’s useful when comparing costs of optional additions or removals for your facility. Things like equipment, alternative systems, and infrastructures are taken into account so you’re able to make practical design decisions for specific situations. Consider it as a method of determining “this or that” to ensure you’re maximizing your budget while working towards an ideal return on investment (ROI).
When preparing for an LCCA, the facilitator considers the following major steps to be essential:
1. Establish objectives.
2. Identify constraints and specify assumptions.
3. Define base case and identify alternatives.
4. Set analysis period.
5. Define level of effort for screening alternatives.
6. Analyze traffic effects.
7. Estimate relative benefits and costs.
8. Evaluate risk.
9. Compare net benefits and rank alternatives.
10. Make recommendations.
Say for instance that you have a deteriorating outdoor condensing unit and you’ve decided to replace it. A LCCA would allow you to decide between replacing the infrastructure with another outdoor condensing unit or opting for something like a geothermal cooling system. You would weigh variables like cost, efficiency, climate, potential inflation, and preferred building temperature to determine what option works best for your building. LCCA accounts for all the aforementioned variables and more.
Taking the time to estimate project alternatives can go a long way toward starting a new venture off on the right foot. The process is thorough and allows you to cover your bases early before moving forward with regular business operations. LCCA even takes into consideration the possibility of disposing of the property years down the line.
Whether it’s a brand new venture or a revitalization of an existing business, taking advantage of a LCCA is the perfect set up for future growth and success.