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Pay Now or Pay Later Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings (1991) / Chapter Skim
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Appendix C Overview of Life-Cycle Cost Analysis Procedure
Pages 47-52

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From page 47...
... The principles of discounted cash flow tell the decision maker that unless the cost of the Year battery is less than four times the cost of a 1-year battery,39 the 1-year choice is probably better because the total economic costs are lower for the same performance. 39All other things being equal and neglecting costs for installation and time out of service, the future costs are simply Discounted, using the discount rate, to their equivalent present value.
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From page 48...
... and the discount rate.40 A longer time horizon will lower the annual savings required to justify an increased initial capital investment and, consequently, the shorter the life of a building, the less worthwhile it is to invest in actions to reduce future operating or maintenance costs. Higher discount rates require larger annual savings to justify an initial capital investment and, consequently, the higher the discount rate, the less worthwhile it is to invest in initial capital costs in order to reduce future operating and maintenance costs.
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From page 49...
... As with other economic evaluation methods, the availability and reliability of cost data are significant practical limitations on the value of the analysis results. THE ANALYSIS PROCESS Most life-cycle cost analyses are conducted within the context of the traditional design or problem-solving process: (1)
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From page 50...
... Facilities-related costs are typically a small fraction of the costs associated with economic and social activities that buildings house, but the influence of a building's performance on these activities can be substantial. If the ventilation system does not work effectively, for example, a building's occupants may suffer health problems, resulting in declining production, lost work time, and health care expenses.
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From page 51...
... , 1988, Standard Guide for Selecting Economic Methods for Evaluating Investments in Buildings and Building Systems, E 1185-87, ASTM, Philadelphia, PA., January.
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Key Terms

  • initial capital
  • discount rate
  • economic life
  • future operating
  • maintenance costs

  • cash flow
  • annual savings
  • capital investment
  • sensitivity analysis
  • building design

  • discounted cash
  • time horizon
  • design decisions
  • broader application
  • reduce future

  • capital costs
  • capital cost
  • lost revenues
  • evaluate alternatives
  • reflect similar

  • work time
  • cost data
  • performed using
  • equivalent amount
  • economic evaluation

  • plausible designs
  • major operation
  • accepted procedures
  • evaluate building
  • technical design


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