February 22, 2007

Will more cash now mean big savings later?

  • Life-cycle cost analysis can help owners discover which green strategies will pay off
    Olympic Associates Co.


    For owners who wish to build green, high up-front costs can be a challenge. One way to address the challenge is to consider the life-cycle cost of the building — the expenses it accrues over its lifetime.

    A building’s life-cycle cost takes into account the ongoing operations, maintenance, energy, replacement and retirement costs, as well as the initial capital costs.

    A life-cycle cost analysis can be conducted at different scales to compare competing building types, building systems (such as lighting or mechanical) or alternative materials. The analysis studies the performance and net cost of the systems over time.

    Photo by Steven Paget
    The Cascade People’s Center in Seattle installed a cistern to harvest rainwater. But a suburban high school decided not to harvest rainwater after a life-cycle cost analysis showed it would take more than 50 years to recoup the cost.

    Considering the life-cycle cost of design alternatives can support choices that improve sustainability and reduce total cost.

    Comparing options

    Life-cycle cost is most widely known for its use in comparing the energy cost of alternative building mechanical systems.

    Large capital projects that receive state funding in Washington are required to complete an energy life-cycle cost analysis that compares different mechanical-system options.

    Life-cycle cost analysis can be used to assess a much wider range of design options, from the siting of a building to a building-envelope assembly. The examples provided in this article are drawn from the author’s experience preparing life-cycle cost analyses and value-engineering studies.

    A life-cycle cost analysis prepared for a university building compared chemical treatment of mechanical-system condenser water with non-chemical treatment using pulsed power. The pulsed system was preferred because it was chemical-free and used less energy.

    The initial and mid-life replacement costs of the pulsed power equipment were more than double the cost of the chemical system.

    Despite this, the cumulative cost of chemicals over a 25-year period outweighed the higher initial and replacement costs of the pulsed system. The life-cycle cost of the non-chemical alternative was 30 percent lower than the cost of the chemical treatment system.

    Understanding value

    High initial costs for a building, system or material can quickly negate the savings accrued from lower operating and maintenance costs. On the other hand, long-term cumulative costs can far outweigh a lower initial cost.

    When evaluating the finishes for a public building with a 50-year design life, a variety of flooring options are often considered.

    Polished concrete, compared with several other flooring options, has a lower life-cycle cost due to its lower initial cost, while terrazzo has only a slightly higher life-cycle cost.

    The cost of terrazzo is 23 percent higher than ceramic tile, but the annual maintenance cost of ceramic tile is close to double that of terrazzo, causing the tile to have the highest life-cycle cost.

    The 40- to 50-year life of polished concrete and terrazzo contribute to their lower life-cycle cost, in contrast to ceramic tile and vinyl composition tile, which must be replaced more frequently.

    The life-cycle cost comparison of these four flooring options gives the owner a much clearer understanding of the relative value of each material.

    Sustainability and cost

    There is an intrinsic relationship between sustainability and optimized life-cycle cost.

    Both are about the wise use of resources now and in the future. Important elements of sustainable design are durability, maintainability, low churn and occupancy costs, and optimized use of energy, water and other resources.

    Meeting these conditions will help lower the life-cycle cost of a facility. Lower operating and maintenance costs are a measure of the degree of energy and resource conservation achieved through the building’s design.

    Life-cycle cost analysis has demonstrated on several Pacific Northwest projects that the estimated life-cycle cost of rainwater-harvesting systems did not justify their installation due to long payback periods.

    For example, the estimated initial cost of harvesting rainwater to use in the toilets at a large suburban high school campus was $139,000. The estimated future cost savings over a 30-year period was $114,000, for net a life-cycle cost of $25,000 compared with using city-supplied water.

    The high initial cost and payback period of over 50 years discouraged the school district from pursuing this option. However, if this school were located in Seattle — with its higher water and sewer discharge rates — the life-cycle cost would change significantly, and the payback period would be just over 10 years.

    Some owners are electing to install rainwater-harvesting systems in anticipation of escalating water and sewer rates.

    Growing use

    Life-cycle cost analysis is seeing growing use as analysis of sustainable design options becomes more rigorous. Some challenges exist that must be overcome to increase the use of life-cycle cost analysis in decision making.

    A significant barrier to life-cycle cost decisions being more commonplace is the separation of capital and operating budgets, a legal requirement for most public-sector agencies.

    Future operational savings typically can not be tapped to finance capital investments. Private sector and institutional owners are not necessarily limited by budget restrictions, and in some cases public owners are finding contracting mechanisms to get around this limitation.

    The phenomenal growth of the green-building market has introduced life cycle thinking to a larger audience. Consideration of life-cycle cost can help building owners achieve long-term, sustainable value and protection from future energy and operating cost escalation.

    Steven Paget is a senior value analysis and sustainability consultant at Olympic Associates Co., an architecture, engineering and construction services consulting firm.

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