Cost Consulting 101: What are Life Cycle Costs?

Cost Consulting

Cost Consulting 101: What are Life Cycle Costs?

As a facility owner, you put a major investment on the line when starting new construction or upgrading a location. The costs of a project can be understandably overwhelming, with a multitude of moving pieces and budgets. Getting through a project and getting it done well is likely your primary focus during construction. Yet, there’s another consideration you have to add to the mix: life cycle costs.

Ultimately, as an owner, you must look constantly to the future, playing a delicate dance of what makes the most sense right now and what will be beneficial in the long term. Life cycle costs encompass those items that you’ll be paying for over the entire life of the facility: utilities, maintenance and operating costs. Each of those buckets has many sub-categories, like electricity and water; cleaning and repairs; and payroll and vendors. All of these have individual and things to keep in mind.

Why Life Cycle Costs Matter.

You may be tempted to put off considering life cycle costs until after initial construction, and consider adjustments as needed down the road. However, balancing long-term needs with right-now costs of construction is vital to getting the most out of your investment. Decisions you make during a project can have either positive or negative effects years after.

For example, investing in certain green-energy items like HVAC systems can be pricey in an upfront build. However, the cost savings long-term in terms of utility expenses and even tax incentives can be significant, and you’ll see a return on investment over time. Similarly, choosing a certain type of flooring and coating that offers durability in a high-traffic facility could mean a larger initial cost but lower maintenance investment overall. Prioritizing life cycle costs doesn’t always mean a bigger initial investment; understanding costs over time can also show what aspects require less to maintain and may be a candidate for cost-savings in the construction phase. For example, you may be able to choose fixtures that are cheaper up front and easier to maintain and replace as needed down the road rather than investing in the top of the line option for every fixture.

How Life Cycle Costs are Estimated.

Estimating life cycle costs is a complex process. The first step is understanding the costs themselves: what bills for utilities, maintenance and operations look like on a weekly, monthly, quarterly and yearly basis. A key component of this is non-monetary costs and benefits; your green-energy HVAC may not only cost less in the long-term, but it’s quiet functionality could mean happier, calmer employees at the facility. Though hard to quantify, these non-monetary items are important to consider. Next, inflation, residual costs and market trends are evaluated to give a more realistic long-term picture. Lastly, uncertainty is taken into account. Ultimately, there will always be some unknowns and the possibility of a black swan event.

This is a 30,000-foot view of life cycle costs, their importance and how they’re evaluated. As an owner, it is always beneficial to engage with an Independent Cost Estimator (ICE) to expertly review your project and provide a detailed look at your life cycle costs. A skilled ICE will give specific recommendations, so you’ll be equipped to make choices during construction that will have a positive effect for years to come.