Life-cycle costing (LCC) as a contribution to sustainable

Life-cycle costing (LCC) as a contribution to sustainable construction: towards a common methodology

John Connaughton, Partner, Davis Langdon, UK

AIMS•• Improve:Improve:

•• competitiveness of the construction industrycompetitiveness of the construction industry•• industryindustry’’s awareness of the influence on environmental s awareness of the influence on environmental

goals of LCCgoals of LCC•• performance of the supply chainperformance of the supply chain•• the value offered to clientsthe value offered to clients•• reliability of project information, predictive methods and reliability of project information, predictive methods and

risk assessmentrisk assessment•• innovation in decisioninnovation in decision--making for procurement involving making for procurement involving

the supply chainthe supply chain


RESEARCH DOMAIN

•• CountriesCountries–– UK UK –– FranceFrance–– GermanyGermany–– NetherlandsNetherlands–– Sweden Sweden –– FinlandFinland–– Norway Norway –– Ireland Ireland –– Spain Spain –– Greece Greece –– Czech RepublicCzech Republic


EARLY DEVELOPMENTS – LITERATURE REVIEW

John Connaughton Partner Davis Langdon UK

•• Extensive body of research exists (references since 2002Extensive body of research exists (references since 2002--3 3 and still over 160 references)and still over 160 references)

•• Economic evaluation methods, discounting, inflation & Economic evaluation methods, discounting, inflation & taxationtaxation

•• Data (environmental, performance and cost) Data (environmental, performance and cost) –– various data various data formatsformats

•• Manufacturers, Suppliers and Trade AssociationsManufacturers, Suppliers and Trade Associations•• Research Organisations, Test Houses and Certification BodiesResearch Organisations, Test Houses and Certification Bodies•• National and EU StandardsNational and EU Standards•• Research papers and reports, Component Life ManualsResearch papers and reports, Component Life Manuals•• Occupiers Property Databases Occupiers Property Databases

•• Risk/uncrtainty evaluation, methods and managementRisk/uncrtainty evaluation, methods and management•• Relationship between LCC and sustainability (LCA)Relationship between LCC and sustainability (LCA)

EU LCC DECISION FRAMEWORK MODEL


INTERVIEW RESULTS (1)


•• LCC was used for internal assessments, client advice, for LCC was used for internal assessments, client advice, for decisiondecision--making regarding investment, scale asset making regarding investment, scale asset selection, research, advice to others, etc.selection, research, advice to others, etc.

•• No standards or formal methodologies exist (except of No standards or formal methodologies exist (except of NorwayNorway’’s NS 3454 and ISO 15686 s NS 3454 and ISO 15686 -- Part 5)Part 5)

•• Economic evaluation Economic evaluation -- mainly NPV, infrequently payback mainly NPV, infrequently payback (not much use of IBR, NS, etc.)(not much use of IBR, NS, etc.)

•• Length of contract Length of contract –– typically 25typically 25--40 years, occasionally up 40 years, occasionally up to 120 yearsto 120 years



•• LCC carried out prior to any investment decisions, at design LCC carried out prior to any investment decisions, at design stage, at the beginning of FM contractstage, at the beginning of FM contract

•• Discount rate variation Discount rate variation -- from 0% to 10from 0% to 10--12% depending on public 12% depending on public or private procurement (standard 3or private procurement (standard 3--6% for public procurement)6% for public procurement)

•• IT tools & models IT tools & models -- Norway (Norway (LCProfitLCProfit), otherwise developed in), otherwise developed in--househouse

•• Sensitivity analysis Sensitivity analysis –– infrequently (for discount rates, period of infrequently (for discount rates, period of analysis) analysis)

•• Risk Risk –– riskrisk registers; stochastic methods virtually not used registers; stochastic methods virtually not used (Norway only Monte Carlo Simulation)(Norway only Monte Carlo Simulation)

•• Barriers Barriers –– lack of knowledge among clients, no historical data to lack of knowledge among clients, no historical data to improve reliance, separate budgets for building and improve reliance, separate budgets for building and maintenance, unclear link with sustainability assessmentsmaintenance, unclear link with sustainability assessments



•• LCA method (most popular) for sustainability assessments LCA method (most popular) for sustainability assessments ––frequently driver for LCC, standard environmental indicatorsfrequently driver for LCC, standard environmental indicators

•• Methodology Methodology –– seemed complete, relationship of seemed complete, relationship of sustainability and LCC seen from individual professional sustainability and LCC seen from individual professional involvement perspective involvement perspective –– variedvaried

•• Incompatible data formats and data classifications (the main Incompatible data formats and data classifications (the main barrier; no solution feasible), CEEC normalisation approach barrier; no solution feasible), CEEC normalisation approach virtually unknown but welcomedvirtually unknown but welcomed

•• Examples (archetypes, instances of LCC application, Examples (archetypes, instances of LCC application, common uses, etc.) essential to provide a practical angle to common uses, etc.) essential to provide a practical angle to the methodologythe methodology

PURPOSE & SCOPE OF METHODOLOGY


•• A Methodological Framework rather than a single prescriptive A Methodological Framework rather than a single prescriptive methodologymethodology

•• Aim for a common & consistent application of LCC across EU, Aim for a common & consistent application of LCC across EU, without replacing countrywithout replacing country--specific approachesspecific approaches

•• Identifies key considerations at each stage in the LCC processIdentifies key considerations at each stage in the LCC process•• Practical guidance on application of LCC in common Practical guidance on application of LCC in common

scenariosscenarios•• Primarily aimed at public sector, but can also be used by Primarily aimed at public sector, but can also be used by

private sector clients, advisors and contractorsprivate sector clients, advisors and contractors•• Guidance Note provides a client overview of the benefits of Guidance Note provides a client overview of the benefits of

LCC and its application in the context of public sector LCC and its application in the context of public sector procurementprocurement

CORE LCC PROCESS


Interpreting and reporting results

Carry out analysis, iterating as required

Assembly of cost and performance data

Confirmation of project and facility requirements

Preliminary identification of parameters and analysis requirements

Defining the objective of the proposed LCC analysis

Interpreting and reporting results

Carry out analysis, iterating as required

Assembly of cost and performance data

Confirmation of project and facility requirements

Preliminary identification of parameters and analysis requirements

Defining the objective of the proposed LCC analysis

LCC METHODOLOGY PROCESS MAP


LINKS WITH SUSTAINABILITY ANALYSIS


STEP OUTCOME / ACHIEVEMENT 3 Identify the extent to

which sustainability analysis relates to LCC

Understanding of: • Relationship between sustainability assessment and

LCC • Extent to which the outputs from a sustainability

assessment will form inputs into the LCC process • Extent to which the outputs of the LCC exercise will

feed into a sustainability assessment

• LCC and LCA as criteria in broader evaluation of options• LCC as a means of evaluating sustainability options• LCC to evaluate financial aspects of sustainability impact• LCA as a means of identifying options for subsequent LCC

analysis

SUSTAINABILITY AND LCC


KEY ELEMENTS OF THE LCC GUIDANCE DOCUMENT


•• Benefits of LCC application in constructionBenefits of LCC application in constructionoo Particular focus on Public sector

•• How LCC is commonly usedHow LCC is commonly used•• Guidance on the methodology can be applied to common usesGuidance on the methodology can be applied to common uses•• Interrelationship between LCC and sustainability analysisInterrelationship between LCC and sustainability analysis

Intended readership:Intended readership:•• Public sector Procurers and public sector Owners/OccupiersPublic sector Procurers and public sector Owners/Occupiers•• Private sector Occupiers and commercial Investors/DevelopersPrivate sector Occupiers and commercial Investors/Developers•• SupplySupply--side, including PPP contractorsside, including PPP contractors

CASE STUDIES (1)


• Project INSPIRE in the UK2 office buildings (new-build and refurbishment) -application of LCC in private sector.

• Project Digi-house – FinlandOffice building for a public client by VTT (Technical Research Centre of Finland) - use of LCC for all stages of the facility’s life cycle with strong focus on sustainable performance.

CASE STUDIES (2)


• College Maximilien Perret of Alfortville, FranceCollege development-application of LCC to selected stages of the life cycle.

• Office accommodation for a public client in the NetherlandsDesigned and costed by the VROM Ministry - use of LCC for a selected 15 year period of the overall life cycle.

STUDY RECOMMENDATIONS


•• The Commission should publish the Common LCC The Commission should publish the Common LCC MethodologyMethodology

•• The Commission should actively promote use of the The Commission should actively promote use of the methodology and its associated processes and guidance in methodology and its associated processes and guidance in the construction industrythe construction industry

•• Through its R&D programme, the Commission should Through its R&D programme, the Commission should encourage:encourage:

oo Further integration of LCC and LCAFurther integration of LCC and LCAoo The development of EMAT guidelinesThe development of EMAT guidelinesoo The development of national guidelines consistent with The development of national guidelines consistent with

the new Common LCC Methodologythe new Common LCC Methodology..

John ConnaughtonPartnerDavis Langdon

[email protected]


Documents

Life-cycle costing (LCC) as a contribution to sustainable