Required Performance Management Guidelines
P.6 Lowest Life Cycle Cost
Intent
Determine the lowest life cycle cost when comparing design alternatives.
Required Performance Criteria
A. Perform a life cycle cost analysis on the energy strategies for the whole building based on three energy use scenarios generated in Guideline E.1 using the life cycle cost calculation embedded in Form P-4 Energy and Atmosphere Documentation.
Recommended Performance Criteria
B. Include more extensive life cycle cost analysis of any design alternatives at the assembly, system or component scale.
Related MSBG Documents
- Form P-2 Performance Management Documentation
- Appendix P-1 Suggested Implementation for All Performance Management Guidelines
- Appendix P-8 Life Cycle Cost Supporting Information
Tools
To comply with this guideline, it is only necessary to use the Life Cycle Cost calculator embedded in Form P-4 Energy and Atmosphere Documentation. For any life cycle cost analysis, a discounted cash flow analysis of each project alternative under review is recommended. These analyses can be accomplished through use of a custom designed discounted cash flow model or through use of the NIST's BLCC computer model. In either case, refer to description of other considerations outside the model under the definition of Life Cycle Cost Formula above. (See Appendix P-8 Life Cycle Cost Supporting Information.)
Custom Designed Model
It is very likely that any entity proposing a significant state funded project will have the resources needed to prepare a discounted cash flow analysis of the project. Such an analysis, typically prepared using Excel, will detail all of the initial costs of design and construction and then project future annual operating and maintenance costs, utility costs, replacement costs, and the residual value of the building and equipment. If these future costs are presented in current dollars in each year (showing the impact of inflation), they are then discounted back to the present using a nominal discount rate (a discount rate that recognizes inflation.) If future costs are expressed in constant dollars (not adjusted for inflation), then they are discounted back to the present using a real discount rate. (For example, FEMP discount and inflation rates, valid for energy and water conservation and renewable energy analyses conducted between 4/1/2004 and 3/31/2005 are: 3% Real Discount Rate, 4.8% Nominal Discount Rate, and a 1.75% Inflation Rate.) The initial costs and the discounted future costs are the summed to provide the discounted present value (discounted cost) of the proposed project over its life cycle. By completing a life cycle cost analysis of different options under consideration and then comparing the discounted present value of each, it is possible to work towards identifying the building option that has the lowest possible lifetime cost.
The BLCC Model
The National Institute of Standards and Technology (NIST) Office of Applied Economics has produced, and annually updates, a Building Life-Cycle Cost (BLCC) computer model that is available at no charge from NIST and that can also be downloaded from their web site. The annual update of the BLCC is released each April and contains the federal government's latest estimates for inflation, energy price escalation by state, and federal discount rates (Nominal and Real.) This model is designed specifically to help the user identify building options that result in the lowest life cycle cost with particular attention paid to energy use and water consumption. The user of this model is expected to enter a base case (typically for a code-compliant basic building), one or more alternative designs, and then compare the results. While the BLCC model is focused on energy and water, with a little imagination it can be used to complete a comprehensive analysis of a project. The model allows the user to add new categories for initial capital expenditures, on going recurring charges, one time future charges, etc., so it is possible to build a comprehensive model of the life cycle costs of a proposed building. Numerous different building configurations can then be defined and evaluated and predefined reports can be used for easy comparisons of alternatives. The BLCC model has a module that compares the base case project to the alternative under review and calculates energy savings and emission reductions (CO2, SO2, NOx) achieved by the alternative.
Supplemental Resources
- Life-Cycle Costing Manual for the Federal Energy Management Program published by National Institute of Standards and Technology (NIST Handbook 135) (222 pages) A comprehensive manual containing a thorough discussion of both the concepts and underlying math of life cycle costing with numerous examples demonstrating the value of this approach. This publication can be ordered at no cost from NIST (301-975-6478) or the EERE Info Center (1-800-363-3732.) It can also be downloaded from the EERE web site: www.eere.energy.gov/femp/program/lifecycle.cfm
- Guidance on Life-Cycle Cost Analysis Required by Executive Order 13123, January 8, 2003 (27 pages) A brief but solid discussion of Life Cycle Cost Analysis concepts and definitions with some examples. Published by FEMP and available through the EERE web site: www.eere.energy.gov/femp/program/lifecycle.cfm
- 2003 Facilities Standards (P100), Section 1.8 Life Cycle Costing (5 pages) This section of the GSA's Facility Standards manual discusses Life Cycle Costing and contains a table summarizing key LCC formulas and their use. Available through GSA: www.gsa.gov (search for "P100", then go to section 1.8 "General Requirements; Life Cycle Costing")
- OMB Circular A-94 - Guidelines for Benefit-Cost Analysis of Federal Programs Presents guidance for the analysis of projects other than those that are primarily energy related. Broadens the discussion beyond just costs and cost-avoidance to include benefits. Available for download at: www.whitehouse.gov/omb/circulars/a094/a094.html
- Whole Building Design Guide is a web based resource containing extensive background information, research reports and references relating to the design, analysis, and construction of "Whole Buildings". Includes information on life cycle analysis, productivity, energy conservation and other topics pertinent to sustainable design. www.wbdg.org