tion, namely the “Balance Sheet” and the “Income Statement” (or Profit and Loss statement).
For-profit organizations show the acquisition value of capital items on the Balance Sheet under the “Assets” head- ing; and costs related to acquiring, using, maintaining and disposing of those assets is buried under the heading “Operating Costs” on the Income State- ment.
However, the relationship between “assets” and “operating costs” is little understood, seldom researched, and almost totally ignored in the search for increased efficiency and profitability.
Consider the purpose statement in the ASTM Standard Practice for Mea- suring Life-Cycle Costs of Buildings and Building Systems: “1.3 The basic premise of the LCC method is that to an investor or decision maker all costs arising from an investment decision are potentially important to that decision, including future as well as present costs. Applied to buildings or building sys- tems, the LCC encompasses all relevant
costs over a designated study period, including the costs of designing, purchas- ing/leasing, constructing/installing, oper- ating, maintaining, repairing, replacing, and disposing of a particular building design or system.” (emphasis added)
It takes a very small leap of imagina- tion to envision the horror stories that in all likelihood led to the development of this standard.
So, to the remaining question: why do we need a standard?
A simple Internet search will quickly establish the fact that there are formulas for calculating the LCC of many, many things, including but not limited to: buildings and building systems; pumps (usually closely related to buildings and building systems); pavement, trucks, lights and other traffic related items; newspaper production systems; rotary aircraft and, especially, for information technology assets.
There are legions of dotcoms ready, willing and able to sell software or serv- ices in support of establishing LCC.
We have already established that
14 PROPERTY PROFESSIONAL Volume 17 Issue 3
there is an existing standard for build- ings and building systems.
Yet there is no standard concerning the life cycle cost(s) of Personal Proper- ty, And upon what do we Property Pro- fessionals spend the vast majority of our time and efforts?
Now, what does a “Personal Proper- ty Life Cycle Cost Standard” look like? It would very probably be similar to Buildings and Building Systems Stan- dard in that it would:
Identify and give examples of objec- tives, alternatives and constraints;
Identify project data and general assumptions needed; and,
Present alternative approaches for computing LCCs.
Without getting into the proce- dures, objectives and general assump- tions, let’s jump to the fun part – alter- native approaches for computing LCCs.
As noted early on in this article, there are many formulas available to compute LCC. Probably the simplest, for a building, seen to date is:
Life-cycle cost = first cost + mainte- nance and repair + energy + water + replacement - salvage value. 8
Here is an LCC formula for pho-
tovoltaic systems: LCC = C + Mpw
Where the pw subscript indicates the present worth of each factor.
The capital cost (C) of a project includes the initial capital expense for equipment, the system design, engineering, and installation.
Maintenance (M) is the sum of all yearly scheduled operation and maintenance (O&M) costs.
The energy cost (E) of a system is the sum of the yearly fuel cost.
Replacement cost (R) is the sum of all repair and equipment replace- ment cost anticipated over the life of the system.
The salvage value (S) of a system is its net worth in the final year of the life-cycle period.