Life-Cycle Cost Analysis (Essay Sample)

Life-Cost Analysis Name of Student University Tutor Date Life-Cycle Cost Analysis Introduction The Life-Cycle Cost Analysis (LCCA) is a general economic assessment approach that includes several economic valuation methodologies including: the Life Cycle Cost (LCC), the Net Benefits (NB) or Net Savings (NS), the Savings-to-Investment Ratio (SIR) and the Internal Rate of Return or the Adjusted Internal Rate of Return. All of these methods take into account the costs of purchasing, operating costs, costs of maintenance and costs of alienation of the property taken into account an appropriate Study Period. More frequently, companies for example, a production plant or a building company have to make investment decisions at different levels of complexity. In making these decisions, it is becoming increasingly important also to consider the environmental costs. The standard methods used for calculating the relevant quantities are summoned up for LCCA without going into the details of their interpretation and use as this would require a lot of time in addition to the necessity of having to call up the theoretical basis of the valuation of investments. Factors/Components of Life-Cycle Cost Analysis Initial Investments costs Initial Investments costs comprise of costs for capital investment including; land acquisition costs, construction costs, and costs for the equipments required to manage the firm. Land acquisition costs should be part of the initial cost estimation in case there is a difference in design options (Fuller, 2010). All the initial investment costs values must be fully supplemented the Life-Cycle Cost Analysis total. Operation Costs These are yearly costs exclusive of repair and maintenance costs involved in the firm’s operations. Nearly all operation costs are linked to building services. All these costs are supposed to be cut-rated to their current value before added to the Life-Cycle Costs Analysis total. Operation costs which aren’t directly linked to the building need not to be part of Life-Cycle Costs Analysis for instance office equipments cost. In case it is a cost for an annual operation, it’s not linked with the building process but is somewhat a purpose of the party using the building. However, in any case plan alternatives produce different necessities of the user, the inclusion of these costs are very necessary. Maintenance and Repair Costs Maintenance Costs are planned costs linked with the maintenance of the firm. A case of a maintenance cost is the expenses for an annual assessment of the roof of the building. The task is a planned event to ensure the building is in a fine state. On the other hand, repair costs are unexpected vital expenses needed to extend the existence of a building facility without changing the entire system, for instance, repairing a broken windowpane. This is an unplanned incident and doesn’t involve replacing the whole window-unit but just the part affected. A number of maintenance costs are executed annually while, repair costs depends on unexpected situations making it impossible to forecast its occurrence. To be precise, these costs need just to be supplemented as annual costs. They are to be cut-rated to their current value before being added to the Life-Cycle Costs Analysis total Replacement Costs These costs are estimated expenses to main building system parts that are necessary for the maintenance of the firm’s operation. They are normally stirred up by replacement of part of a building system or the entire system that is too unfit for maintenance. An instance of this particular cost is the replacement of a water reservoir. The water reservoir has a shorter life prospect compared to the expectancy of the firm where it is superimposed, and therefore, it might malfunction unexpectedly when the facility is still fit and hence need to be replaced to ensure the firm carries on with its regular operations. Residual Value The residual value of a component of a facility or the entire system is its net value at the closing stages of the examination period, or during the instance of its replacement at some point in the examination period. They can be going towards price in place, retrieval price, or conversion costs (Fuller, 2010). Importance of Life-Cycle Cost Analysis A Life-Cycle Cost Analysis can help a company to make coherent choices in terms of energy efficiency and environmental costs. This methodology allows the company to seize the opportunities. Often a new standard or new binding rules are interpreted as a constraint to be respected more that is likely to reduce the freedom to operate the company. As a matter of facts the most careful companies have realized for some time the importance of taking the environmental variable, and they have acted to turn the attention to the environment into opportunities, opportunities that will surely catch even with the new regulatory framework that is emerging. Invests in products and processes with a lower environmental impact or superior environmental performance will not only respect more and more str...