Life Cycle Cost Calculator

Life cycle cost analysis answers a purchasing question that first cost cannot: which alternative is cheapest to own, not merely cheapest to buy. The calculation adds acquisition cost to the present value of every recurring operating and maintenance payment across the asset's service life, each year's amount divided by one plus the discount rate raised to the power of that year. Where the recurring amount is uniform, the present value annuity factor, equal to one minus one plus r raised to minus n, all divided by r, collapses the summation into a single multiplier. Dividing the resulting life cycle cost by that same annuity factor produces the equivalent annual cost, the only fair basis for comparing alternatives with unequal lives, such as a 15-year chiller against a 25-year one. Discount rates in practice: the US Federal Energy Management Program publishes a real discount rate each year for federal energy projects, historically around 3 percent, while private analyses use a weighted average cost of capital of 6 to 12 percent. A high-efficiency HVAC plant may carry a 30 percent cost premium yet win on life cycle cost by cutting energy use 40 percent. Results are only as good as the assumed service life, the escalation applied to energy prices, and the treatment of mid-life component replacement, which belongs in the year it occurs rather than smoothed across the term.

Life cycle costing entered formal practice through military procurement. In the mid-1960s the United States Department of Defense, under Secretary Robert McNamara's Planning-Programming-Budgeting System, began requiring that weapons and equipment be evaluated on total ownership cost rather than acquisition price, after studies showed that support and operating costs frequently exceeded purchase cost several times over. The Logistics Management Institute produced influential guidance for the department during this period, and the approach spread to civil agencies during the 1970s. The energy crises gave it a second life in buildings. The US National Institute of Standards and Technology, then the National Bureau of Standards, developed the methodology that became Handbook 135, the Life-Cycle Costing Manual for the Federal Energy Management Program, supporting rules codified at 10 CFR Part 436 that mandate life cycle cost analysis for federal building energy decisions and set annually published discount rates. ASTM issued standard practice E917 for measuring the life-cycle costs of buildings and building systems, and the international standard ISO 15686-5, covering service life planning and life-cycle costing, was first published in 2008 and revised in 2017. Green building rating systems subsequently made the analysis routine for major mechanical and envelope decisions.