Lifecycle Cost Analysis is a method of assessing which asset option, will be the most economical over an extended period of time.
Alternate Definitions
The International Infrastructure Management Manual defines Lifecycle Cost Analysis as any technique which allows assessment of a given solution, or choice from among alternative solutions, on the basis of all relevant economic consequences over the service life of the asset.
Methodology
- To calculate the Lifecycle Cost of an asset all cashflows, both positive (inflows) and negative (outflows) need to be identified for each year of the useful life of the asset.
- Cashflows should be stated in actual cash terms, that is all costs and incomes are at the levels expected in that year. No allowance should be made for inflation.
Outflows
There are probably 4 main outflows to consider:
- Cost of Construction
- Maintenance Expenditure
- Operational Expenditure
- Cost of Disposal
The above costs will vary greatly depending on the type of asset being considered.
The table below shows typical annual maintenance & operational costs expressed as a percentage of the capital cost of a range of asset types.
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Note: For the moment the table is only populated with one example from reference (5) below, but it could eventually become a good starting point for anyone looking at lifecycle costs for the first time, provided a few councils start contributing data to it.
