methodology, analysis, and issues related to the potential application of the analytical approach in the DOD operating environment.
Life-Cycle Cost Analysis (LCCA), Cost-Effectiveness Analysis (CEA), and Benefit-Cost Analysis (BCA) are three methods for measuring the economic performance of buildings.1 The definitions and appropriate use of those analytical methods are described below.
Life-Cycle Cost Analysis
LCCA takes into account all costs associated with a structure, system, or component over its defined life cycle or over the specific time horizon of the decision maker. Life-cycle costs (LCC) typically include those incurred during the acquisition phase, utilization phase, and disposal phase. The acquisition phase may include such costs as those for research and development, conceptual design, detailed design and development, construction and/or production, and installation. The utilization phase may include costs of energy and other resources and labor costs for operation, maintenance, repair, and replacements. The disposal phase may include demolition costs incurred at the end of the life cycle or end of the user’s time horizon and may also entail positive resale, recycle, or scrap value, which is treated as a negative cost in the LCCA formulation.
LCCA is an appropriate method for selecting among possible alternatives that all meet performance requirements and differ primarily in their life-cycle costs. Other factors being the same, the alternative with the lowest LCC is the preferred choice. The purpose of LCCA is to base the choice among mutually exclusive alternatives on a broader, longer-term view of costs, rather than on first costs alone (such as acquisition, design, and construction costs). The analysis brings costs of each of the alternatives to a net present value (NPV) to allow the alternatives to be compared on a common basis. (If benefits also differ somewhat among alternatives, these can be incorporated as negative costs in the LCCA formulation, or a subjective trade-off can be made among alternatives, taking into account both their comparative life-cycle costs and their performance differences.) ASTM International (formerly known as the American Society for Testing and Materials) has developed a Standard Practice for Measuring Life-Cycle Costs of Buildings and Building Systems (ASTM E917-05, 2010).
The U.S. Office of Management and Budget (OMB) prescribes discount rates for use in performing both cost-effectiveness analysis and benefit-cost analysis of federal investments: real discount rates for federal CEA—and, therefore, LCCA—vary by time period, and the rate for a 30-year time horizon is currently 2.0 percent. 2
CEA encompasses LCCA, but is somewhat broader in scope. It is an approach for comparing alternatives that meet or exceed the desired level of performance or benefits and differ primarily in their comparative costs. CEA can be used to compare alternatives that differ in both their cost and performance
1 Life-Cycle Assessment is an analytical method for measuring the environmental impacts of buildings. Although important, it is not part of this study or the DOD consultant’s report because Section 2830 of the National Defense Authorization Act of 2012 and the statement of task specifically focused on economic/financial measures.
2 Federal discount rates are available at http://www.whitehouse.gov/omb/circulars_a094/a94_appx-c.