Investment and replacement actions over time may impact
Future one-time costs, such as replacement costs, are
recurring costs. For simplicity, unless otherwise directed,
established by escalating a known today's value (using
fluctuating recurring cost savings may be assumed to be
real growth rate) to its future value in the year it occurs,
proportionate to the savings realized at the start of the
then discounting that value back to its present value
(using a real discount rate). The formula for this
is shown in the LCC Formulas Table 1-1.
Calculate the savings to investment ratio (SIR) for com-
parisons of dissimilar alternatives, such as comparing an
For instances where an alternative has service life beyond
HVAC alternative to a lighting alternative. Calculate net
the analysis period, allowance shall be made for the
savings for comparisons of similar alternatives, such as
associated residual service worth. This calculation
optimizing insulation thickness in a wall.
involves identifying the future residual value at the end of
the analysis period, then discounting the amount back to
A sensitivity analysis is required whenever assumptions
the present. The future residual value can be approxi-
may be considered questionable. This simply requires
mated by multiplying the future investment value (less
conducting multiple LCC analyses using extremes of cost
future salvage value at the end of its service life) by the
parameters in question.
proportion of time remaining in the analysis period,
Due to possible margins of error in estimating costs,
compared to its service life.
alternatives with a life cycle cost differential of less than
Annually recurring fixed costs include those costs where
10 percent can be judged inconclusive by GSA.
increases have no real growth, such as costs that
To define energy related cost impacts for alternatives
increase at the general inflation rate. They can be
that are influenced by weather and/or varying loads/
represented by the formula shown in the LCC Formulas
schedules, the energy use modeling program DOE2 or
Table 1-1. Also in this table is the formula for recurring
other approved software shall be used.
costs where recurring costs escalate. Both formulas
involve multiplying a known cost (in today's value) by
a uniform present worth value.
Fuel costs represent a special case of recurring esca-
lating costs. Uniform present worth values are available
from NIST data, correlating specific fuel types by
sector/location for a defined analysis period. For simpli-
city, demand charges may be assumed to escalate at the
same rate as consumption charges.
26 F A C I L I T I E S S T A N D A R D S
1.8 Life Cycle Costing
Revised March 2005 PBS-P100