Describe Factors Of A Life Cycle Cost Analysis (LCCA) (Essay Sample)
1. Discuss the factors of a life cycle cost analysis (LCCA) and the importance of such an analysis.
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Life-Cycle Cost Analysis
Life-Cycle Cost Analysis
When coming up with a project, an economic evaluation is important during the initial stages to determine the most cost-effective way of implementing the project. Life cycle cost analysis is one of the methods used to assess the overall cost required to undertake a project (Cabeza et al., 2014). LCCA is a useful process, especially when seeking an alternative measure to achieve the same performance requirements. LCCA helps in comparing the initial cost and operating cost to select the best alternative that will help maximize savings (Cabeza et al., 2014).
Life-Cycle Cost Analysis is a straightforward process of interpreting specific measure of economic evaluation. The LCCA is performed earlier to help in refining and ensuring that the life cycle cost of a project is reduced. The LCCA entails estimating the cost of operation, maintenance, and use, apart from the purchase price; this is a realistic way of evaluating cost rather than just focusing on the purchase prices only (Swei, Gregory & Kirchain, 2017).
Factors of a life cycle cost analysis (LCCA).
There are several factors to consider when conducting LCCA these include cost, period and alternative comparison (Swei, Gregory & Kirchain, 2017). Some of the cost-related factors that need to be evaluated include the operation costs, maintenance costs and replacement costs. The initial costs include cost related to acquisition, construction or purchases (Swei, Gregory & Kirchain, 2017). Other initial costs include finance charges, residual values, and non-monetary costs (Swei, Gregory & Kirchain, 2017).
It's important to consider cost relevant to the decision and the amount needed to make investment decisions. Relevant cost can be determined when other alternative costs are compared to the initial cost. A huge cost difference can make a difference in an initial project cost (Farr et al., 2016). Before undertaking a project, initial costs like the capital invested includes the cost of acquiring land, construction, renovating and purchasing equipment to operate the projects (Farr et al., 2016).
For example, if its land acquisition, the LCCA needs to include the initial cost estimate and review the cost of any available alternative. This evaluation is also applicable when comparing the costs related to renovation versus constructing a new project (Farr et al., 2016). Construction cost can be estimated by referring to previous data from similar facilities, and the alternative cost can be generated from other sectors like the private sector or government archives (Cabeza et al., 2014).
Operational costs like utilities that are frequently considered can be energy and water, which are calculated based on current rates. Due to the difference in consumption of services like water, an assessment needs to be done based on the specific components (Cabeza et al., 2014). Energy usage can be difficult to predict, especially in the initial process of the project. Such consumptions are determined based on specific factors like occupancy rate or schedules (Cabeza et al., 2014). Factors like the amount of energy consumption can be determined from the analysis based on engineer's perspective (Cabeza
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