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Life cycle cost analysis (LCC) in the United States green building
industry.
Dave Nornes
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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
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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.”
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Green Building
• Sustainable
• Durable/Adaptable
• Building beyond the codes
• Build for the occupant
• Whole systems approach
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Barriers to Green
• Codes
• Education
• Cost
• Products not available
• Breaking tradition
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Reasons to Build Green
• Mandated
• Market demands
• Occupant comfort and health
• Save $
• Environmental responsibility
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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
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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
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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.
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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)
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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
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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.
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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.
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Recent LCC trends
• Infrastructure– durability/ longevity
• Federal/State Buildings– efficiency/ obsolescence
• Green Buildings– LCC/ LCA studies
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LCC Uncertainties
• Input data– estimating– assumptions
• Parameters– discount rate– useful life/ study period– future prices
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Literature
LCC importance to promote green features.
Little evidence exists about if, who, how, and where LCC is applied.
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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.
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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?
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Methodology
Survey ResearchHuman Characteristics
• thoughts
• behaviors
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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)
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Sample
Sample PopulationLEED registered project contacts
• 1000 cover letters with hyperlink to questionnaire
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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
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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
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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
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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
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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
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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%
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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
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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
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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
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Conclusions
Where are improvements needed in the LCC process?
• User friendly tools• Better input data• Owner education benefits
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Conclusions
No11%
Yes89%
Do you think LCC is an effective tool to increase sustainable building practices?
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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?