Appunti Technical assessment

LIFE CYCLE COSTING (LCC)

LCC is one of the many approaches to the "economic performance" of a building:

• Life cycle cost (LCC) analysis
• Cost / benefit ratio
• Internal rate of return
• Net benefits (savings)
• Payback time
• Multicriteria (eg Analytical Hierarchy Process)
• Risk analysis

Life-cycle cost LCC: Cost of an entity or parts of it in its life cycle ensuring compliance with performance requirements (ISO 15686-5 "life cycle costing")

Terminology ISO:

3.1 Costs

3.1.1 Acquisition cost - all costs included in acquiring an asset by purchase/lease or construction procurement route, excluding costs during the occupation and use or end-of-life cycle asset life phases of the constructed

3.1.2 Capital cost - initial construction costs and costs of initial adaptation where these are treated as capital expenditure acquisition

Note 1 to entry: The capital cost may be identical to the cost (3.1.1) if initial

adaptation costs are not included.

3.1.3discounted cost real cost real discountresulting cost when the (3.1.12) is discounted by therate nominal cost nominal(3.3.7) or when the (3.1.10) is discounted by thediscount rate (3.3.5)

3.1.4disposal cost disposal assetcosts associated with (3.4.2) of the (3.4.1) at the end oflife cycleits (3.3.4), including taking account of any asset transferobligations

Note 1 to entry: Asset transfer obligations could include bringing the assetsup to a predefined condition. whole-life

Note 2 to entry: Income from selling the asset is part ofcosting residual value(3.1.15), where the (3.3.8) of the building,components, materials and appliances can be included.

3.1.5end-of-life cost assetnet cost or fee for disposing of an (3.4.1) at the end of its service lifeor interest period

Note 1 to entry: End-of-life costs can include costs resulting fromdecommissioning, deconstruction and demolition of a building, sitedecontamination/remediation, recycling, recovery, and

1. disposal of components and materials; and transport and regulatory costs.
2. external costs: costs associated with an asset that are not necessarily reflected in the transaction costs between provider and consumer and that, collectively, are referred to as externalities.
   Note 1 to entry: These costs may include business staffing, productivity and user costs; these can be taken into account in a life-cycle cost analysis but are to be explicitly identified.
3. life-cycle cost: cost of an asset or its parts throughout its life cycle, while fulfilling the performance requirements.
4. life-cycle costing: methodology for systematic economic evaluation of life-cycle costs over a period of analysis, as defined in the agreed scope.
   Note 1 to entry: Life-cycle costing can address a period of analysis that covers the entire life cycle or selected stage(s) or periods of interest thereof.
5. maintenance cost: total of necessarily incurred labour, material and other related costs.

incurred - to retain a building or its parts in a state in which it can perform its required functions

Note 1 to entry: Maintenance includes conducting corrective, responsive and preventative maintenance on constructed assets, or their parts, and includes all associated management, cleaning, servicing, repainting, repairing and replacing of parts, where needed, to allow the constructed asset to be used for its intended purposes.

nominal cost - expected price that will be paid when a cost is due to be paid, including estimated changes in price due to, for example, forecast change in efficiency, inflation or deflation and technology

operation cost - costs incurred in running and managing the facility or built environment, including administration support services

Note 1 to entry: Operation costs could include rent, rates, insurances, energy and other environmental/regulatory inspection costs, local taxes and charges.

real cost - cost expressed as a value at the base date, including estimated

changes in price due to forecast changes in efficiency and technology, but excluding general price inflation or deflation

3.1.13 sunk costs

costs of goods and services already incurred and/or irrevocably committed

Note 1 to entry: These are ignored in an appraisal. The opportunity costs of whole-life obtaining or continuing to tie up capital are, however, included in cost assets (3.1.14) analysis and the opportunity costs of using (3.4.1) can life-cycle cost be dealt with as costs in (3.1.7) analysis.

3.1.14 whole-life cost

WLC all significant and relevant initial and future costs and benefits of asset life cycle an (3.4.1), throughout its (3.3.4), while fulfilling the performance requirements

3.1.15 whole-life costing whole-life methodology for systematic economic consideration of all costs (3.1.14) and benefits over a period of analysis, as defined in the agreed scope

Note 1 to entry: The projected costs or benefits may include external costs (including, for example, finance, business costs, income from land sale,

Note 2 to entry: Whole-life costing can address a period of analysis that covers the entire life cycle or (a) selected stage(s) or periods of interest thereof. life-cycle

Note 3 to entry: This definition is to be contrasted with that for costing (3.1.8).

PVLCC = IC + PVM + PVR + PVF – PVS

IC= initial cost (design, construction, acquisition, …)

PVM = present value of maintenance and repair costs

PVR = present value of replacement costs

PVF = present value for fluids/utilities/energy

PVS = present value of sale (negative is disposal cost)

Discount rate

The discount rate in the private sector should represent the opportunity cost of investing the capital, which can be

a) the interest cost of a loan for the investment,

b) the interest lost on reduction of cash on deposit,

c) the returns lost on investment elsewhere (e.g. in bonds or equities),

d) the actual return achieved on capital investment in the business,

e) the required rate of return of an

reliability improvements equals the incremental savings in maintenance and support costs, and in consequential costs. At a certain point, an optimum product reliability, which corresponds to the lowest life cycle cost, is achieved.

4.4.3.1 General

When a product or service becomes unavailable, a series of consequential costs may be incurred. These costs may include:

• warranty cost;
• liability cost;
• cost due to loss of revenue;
• costs for providing an alternative service.

In addition, further consequential costs should be identified by applying risk analysis techniques to determine costs of adverse impacts on the company's:

• image,
• reputation,
• prestige,

which in turn may result in loss of clients.

Due Diligence review main stages of the transaction/sales

Preliminary activities by the seller.

The seller identifies the properties that it intends to sell and collects all relevant information and data in appropriate files also including

Alldocumentation accompanying the buildings (property titles, any mortgages, rights of third parties, permits, certificates, booklets of plants, ...). Afterwards the seller defines a sale price, the way of communicating its offer - possibly even preparing a specific presentation (Memorandum) of the property- and defines the selection of potential bidders.

Preliminary activities by the buyer.

• The buyer after finding, based on the procedures of publicity of the seller, the opportunity to acquire real estate assets, develops preliminary analysis of the feasibility of the operation in the economic, financial and taking account of its development strategies and management. Make the first estimates on the economic assessment of the seller and defines the basic criteria for the proposed development of assets.

Preparation of the preliminary sale contract

• The parties (seller and buyer) define a preliminary contract which outlines the main provisions of the agreement and a first hypothesis of

The warranty provisions. The preliminary contract also defines the terms and conditions for the assessment of the assets by the buyer through an analysis of the Memorandum and, above all, through a due diligence activities for which contract should define terms and conditions of execution as well as the conditions of access to asset and to its original documentation.

Due diligence

• The buyer chooses the due diligence team (in-house or using external consultants or third-party) and agree the scope of work in relation to its needs for knowledge and its acquisition and development strategy.
• The final report of the assessment identifies any physical deficiencies of the assets involved in the transaction and quantify the corresponding restoration cost;
• based on information provided, the buyer defines the terms of the guarantee and any adjustments to the sale price.

"Technical risk" management

• physical degradation:
• pathological phenomena or damage to the building