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

analysis period.

(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.

FOR THE

PUBLIC

BUILDINGS

SERVICE

Revised March 2005 PBS-P100

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