Life cycle cost analysis (LCC) in the United States green building industry.

Dave Nornes

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 CO 2 emissions • 40% of landfill waste

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.”

Green Building

• Sustainable • Durable/Adaptable • Building beyond the codes • Build for the occupant • Whole systems approach

Barriers to Green

• Codes • Education • Cost • Products not available • Breaking tradition

Reasons to Build Green

• Mandated • Market demands • Occupant comfort and health • Save $ • Environmental responsibility

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

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

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.

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)

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

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.

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.

Recent LCC trends

• Infrastructure – durability/ longevity • Federal/State Buildings – efficiency/ obsolescence • Green Buildings – LCC/ LCA studies

LCC Uncertainties

• Input data – estimating – assumptions • Parameters – discount rate – useful life/ study period – future prices

Literature

LCC importance to promote green features.

Little evidence exists about if, who, how, and where LCC is applied.

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.

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?

Methodology

Survey Research Human Characteristics • thoughts • behaviors

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)

Sample

Sample Population LEED registered project contacts • 1000 cover letters with hyperlink to questionnaire

Response rate

104 total responses (10.4 %) – 84 questionnaires completed

Figure 1. Occupation of respondents

45% Architects 17% Engineers 9% Consultants Facility manager Developer Other Consultant Project manager Engineer Architect

Findings

Current use of life cycle cost analysis

Projects utilizing LCC

70 60 50 40 30 20 10 0 0-25% 25-50% 50-75%

Percentage of projects

75-100% LEED projects All projects

Findings

Types of projects utilizing LCC

Project types using LCC

Highway/Infrastructure Institutional Residential Renovations Commercial Private Public 0 5 10 15 20 25

Responses

30 35 40 45 50

Findings

Team member(s) initiating the interest of conducting LCC Individual responsible for the analysis

LCC Driver and Analyst

60 50 40 30 20 10 0 Analyst Driver

Findings

Goals of the LCC

Goals of the project’s LCC

Goal

Reduce operation/ maintenance costs Extend useful life/durability Increase occupant productivity/comfort Conserve natural resources Future facility alteration Lower construction costs Meet government mandates

Very important

55 47 31 27 17 16 15

Somewhat important

8 12 24 29 37 36 25

Not important

9 9 0 4 8 7 21

Response Avg.

1.13

1.32

1.63

1.68

1.87

1.89

2.1

Findings

LCC application to building components

LCC application in predictive analysis

Building component

HVAC system Lighting/day-lighting Operations and maintenance Windows Insulation Water conservation Exterior finishes/Roofing Size of building Interior finishes Renewable energy Disposal/deconstruction Foundation/structural elements

Always

41

27

27

23

21 19

23 11

10

17

5

4 Sometimes

23

30

26

29

31 27

22 14

21

25

20

13 Seldom

1

7

8

9

10 16

15 20

17

19

19

30 Never

0

2

1

0

2 2

4 16

16

2

20

16 Weighted avg.

1.38

1.69

1.76

1.84

1.86

2.02

2 2.67

2.61

2.1

2.84

2.92

Positive pay off

94%

75%

59%

50%

45% 45%

34% 22%

17%

13%

11%

3%

Findings

Accuracy of LCC projections

Accuracy of LCC projections

Building component Lighting/day-lighting HVAC system Water conservation Operations and maintenance Windows Exterior finishes/Roofing Size of building Insulation Interior finishes Foundation/structural elements Disposal/deconstruction Renewable energy Better than or equal to projected 26 29 21

20

13

9

9

13

7

3

4

7

Less than projected 7 12

2

4 8

8

4

9

3

4

6

14

No post construction follow-up 20 13 23

20

33

38

35

29

34

37

33

24

Weighted avg.

19 17 13

12

9

7

5

4

4

-1

-2

-7

Findings

Constraints encountered in the LCC

Constraints encountered in LCC

Lack of savings justified Added time involved Inaccurate input data Added cost involved Forecasting uncertainties/ complex tools 0 5 10 15 20 25

Responses

30 35 40 45

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

• • •

Conclusions

Where are improvements needed in the LCC process?

User friendly tools Better input data Owner education benefits

Conclusions

Do you think LCC is an effective tool to increase sustainable building practices?

No 11% Yes 89%

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?