Life cycle cost analysis (LCC) in the United States green building

industry.

Dave Nornes

Impact of the built environment

• 40% of the world’s energy

• 25% of the timber harvested

• 16% of the fresh water used

• 50% ozone depleting CFC’s

• 30% of raw materials used

• 35% of CO2 emissions

• 40% of landfill waste

Green Building“An integrated framework of design,

construction, operations, and demolition practices that encompass the environmental, economic, and social impacts of buildings.”

“Building practices recognizing the interdependence of the natural and built environment and seek to minimize the use of energy, water, and other natural resources while providing a healthy and productive indoor environment.”

Green Building

• Sustainable

• Durable/Adaptable

• Building beyond the codes

• Build for the occupant

• Whole systems approach

Barriers to Green

• Codes

• Education

• Cost

• Products not available

• Breaking tradition

Reasons to Build Green

• Mandated

• Market demands

• Occupant comfort and health

• Save $

• Environmental responsibility

Reasons to build green

“Building to code means that if a building were designed any worse it would be against the law.”

Randy Croxton, Architect

Life Cycle Costing

Economic assessment of alternatives that considers all of the significant costs of ownership over the useful life expressed in equivalent dollars.

• initial costs• financing costs• operational costs

History of LCC

1933-- Comptroller of the U.S. Government• factored maintenance costs in bids for tractor

acquisition

1940-- WW II• Shortage of materials and labor.

• Lawrence D. Miles (General Electric Inc.) created value engineering model for substitute materials and procedures.

LCC applied to buildings

1970’s--U.S. General Accounting Office applied LCC to hospital facilities.

• Operation and Maintenance costs equal initial investment costs in 1-3 years.

• Focused primarily on energy costs.(Arab oil embargo)

Standardized LCC methods

American Society for Testing and Materials (ASTM)

1980--Set a series of standards for building economics.

• LCC analysis

• Benefit to Cost Ratio

• Internal Rate of Return (IRR)

• Net Benefits

• Payback Period

LCC characteristics

LCC treats design decisions as investments in buildings and building components.

LCC compares the estimated costs of different options taking into account both initial capital costs as well as costs that may be incurred over the life cycle.

LCC objectives

To provide an analytical tool that can establish the interaction between planning and design decisions and long term costs.

To promote interdisciplinary communication and look at the building as a whole and not merely its component parts.

Recent LCC trends

• Infrastructure– durability/ longevity

• Federal/State Buildings– efficiency/ obsolescence

• Green Buildings– LCC/ LCA studies

LCC Uncertainties

• Input data– estimating– assumptions

• Parameters– discount rate– useful life/ study period– future prices

Literature

LCC importance to promote green features.

Little evidence exists about if, who, how, and where LCC is applied.

Statement of the Problem

Green building initiatives are predicated on the fact that benefits accrue over the life of the building.

Use of LCC is needed to increase adoption of green building practices.

Research Questions

1. What are the goals of LCC?

2. Who are the drivers of the studies?

3. To which types of projects is LCC applied?

4. Which building components are analyzed?

5. What constraints are faced with LCC?

Methodology

Survey ResearchHuman Characteristics

• thoughts

• behaviors

Instrument

Web-based questionnaire– 18 scaled, nominal, and ordinal questions

• Part 1- set framework for parameters of study

• Part 2- specific use and application

– 3 open ended response questions• Part 3- LCC and Green building (opinions and

perceptions)

Sample

Sample PopulationLEED registered project contacts

• 1000 cover letters with hyperlink to questionnaire

Response rate

104 total responses (10.4 %)– 84 questionnaires completed

45% Architects

17% Engineers

9% Consultants

Figure 1. Occupation of respondents

Architect

Engineer

Project manager

Consultant

Developer

OtherFacility manager

Findings

Current use of life cycle cost analysis

Projects utilizing LCC

010

20304050

6070

0-25% 25-50% 50-75% 75-100%

Percentage of projects

Res

po

nse

s

LEED projects

All projects

Findings

Types of projects utilizing LCC

Project types using LCC

0 5 10 15 20 25 30 35 40 45 50

Public

Private

Commercial

Renovations

Residential

Institutional

Highway/Infrastructure

Responses

Findings

Team member(s) initiating the interest of conducting LCC

Individual responsible for the analysis

LCC Driver and Analyst

010

203040

5060

Archit

ect

Engine

er

Owner

Facilit

y man

ager

Consu

ltant

Gover

nmen

t

Projec

t man

ager

Vendo

r

Group

Dec

ision

Other

Res

po

nse

s

Analyst

Driver

Findings

Goals of the LCC

Goals of the project’s LCC

   

Goal Very important Somewhat important Not important Response Avg.

Reduce operation/ maintenance costs 55 8 0 1.13

Extend useful life/durability 47 12 4 1.32

Increase occupant productivity/comfort 31 24 8 1.63

Conserve natural resources 27 29 7 1.68

Future facility alteration 17 37 9 1.87

Lower construction costs 16 36 9 1.89

Meet government mandates 15 25 21 2.1

Findings

LCC application to building components

LCC application in predictive analysis      

Building component Always Sometimes Seldom NeverWeighted

avg.  Positive pay-

off

HVAC system 41 23 1 0 1.38   94%

Lighting/day-lighting 27 30 7 0 1.69   75%

Operations and maintenance 27 26 8 2 1.76   59%

Windows 23 29 9 2 1.84   50%

Insulation 21 31 10 1 1.86   45%

Water conservation 19 27 16 2 2.02   45%

Exterior finishes/Roofing 23 22 15 4 2   34%

Size of building 11 14 20 16 2.67   22%

Interior finishes 10 21 17 16 2.61   17%

Renewable energy 17 25 19 2 2.1   13%

Disposal/deconstruction 5 20 19 20 2.84   11%

Foundation/structural elements 4 13 30 16 2.92   3%

Findings

Accuracy of LCC projectionsAccuracy of LCC projections    

Building componentBetter than or

equal to projected

Less than projected No post construction follow-up

Weighted avg.

Lighting/day-lighting 26 7 20 19

HVAC system 29 12 13 17

Water conservation 21 8 23 13

Operations and maintenance 20 8 20 12

Windows 13 4 33 9

Exterior finishes/Roofing 9 2 38 7

Size of building 9 4 35 5

Insulation 13 9 29 4

Interior finishes 7 3 34 4

Foundation/structural elements 3 4 37 -1

Disposal/deconstruction 4 6 33 -2

Renewable energy 7 14 24 -7

Findings

Constraints encountered in the LCC

Constraints encountered in LCC

0 5 10 15 20 25 30 35 40 45

Forecasting uncertainties/ complex tools

Added cost involved

Inaccurate input data

Added time involved

Lack of savings justified

Responses

Conclusions

Why do you suspect you are not using or under utilizing LCC on the LEED project you are associated with?

• Shift costs/ budget• Lack of expertise/user friendly tools• Lack of time

Conclusions

Where are improvements needed in the LCC process?

• User friendly tools• Better input data• Owner education benefits

Conclusions

No11%

Yes89%

Do you think LCC is an effective tool to increase sustainable building practices?

Future Research

How can the cost to perform an LCC be justified?

How can the time to perform an LCC be reduced?

What improvements are needed in LCC software?

How can the industry have better trained LCC practitioners?