ASTM E917-17(2023)

Standard Practice for Measuring Life-Cycle Costs of Buildings and Building Systems

SIGNIFICANCE AND USE
5.1 LCC analysis is an economic method for evaluating a project or project alternatives over a designated study period. The method entails computing the LCC for alternative building designs or system specifications having the same purpose and then comparing them to determine which has the lowest LCC over the study period.  
5.2 The LCC method is particularly suitable for determining whether the higher initial cost of a building or building system is economically justified by reductions in future costs (for example, operating, maintenance, repair, or replacement costs) when compared with an alternative that has a lower initial cost but higher future costs. If a building design or system specification has both a lower initial cost and lower future costs relative to an alternative, an LCC analysis is not needed to show that the former is the economically preferable choice.  
5.3 If an investment project is not essential to the building operation (for example, replacement of existing single-pane windows with new double-pane windows), the project must be compared against the “do nothing” alternative (that is, keeping the single pane windows) in order to determine if it is cost effective. Typically the “do nothing” alternative entails no initial investment cost but has higher future costs than the proposed project.
SCOPE
1.1 This practice establishes a procedure for evaluating the life-cycle cost (LCC) of a building or building system and comparing the LCCs of alternative building designs or systems that satisfy the same functional requirements.  
1.2 The LCC method measures, in present-value or annual-value terms, the sum of all relevant costs associated with owning and operating a building or building system over a specified time period.  
1.3 The basic premise of the LCC method is that to an investor or decision maker all costs arising from an investment decision are potentially important to that decision, including future as well as present costs. Applied to buildings or building systems, the LCC encompasses all relevant costs over a designated study period, including the costs of designing, purchasing/leasing, constructing/installing, operating, maintaining, repairing, replacing, and disposing of a particular building design or system.  
1.4 The values stated in inch-pound units are to be regarded as standard. The values given in parentheses are mathematical conversions to SI units that are provided for information only and are not considered standard.  
1.5 This international standard was developed in accordance with internationally recognized principles on standardization established in the Decision on Principles for the Development of International Standards, Guides and Recommendations issued by the World Trade Organization Technical Barriers to Trade (TBT) Committee.

General Information

• Status: Published
• Publication Date: 30-Jun-2023
• ICS: 91.010.20 - Contractual aspects
• Technical Committee: E06 - Performance of Buildings
• Drafting Committee: E06.81 - Building Economics

Relations

• Refers: ASTM E1121-15(2020)e1 - Standard Practice for Measuring Payback for Investments in Buildings and Building Systems
• Effective Date: 01-Apr-2020
• Refers: ASTM E1185-15(2020)e1 - Standard Guide for Selecting Economic Methods for Evaluating Investments in Buildings and Building Systems
• Effective Date: 01-Apr-2020
• Refers: ASTM E1369-15(2020)e1 - Standard Guide for Selecting Techniques for Treating Uncertainty and Risk in the Economic Evaluation of Buildings and Building Systems
• Effective Date: 01-Apr-2020
• Refers: ASTM E1057-15(2020)e1 - Standard Practice for Measuring Internal Rate of Return and Adjusted Internal Rate of Return for Investments in Buildings and Building Systems
• Effective Date: 01-Apr-2020
• Refers: ASTM E964-15(2020)e1 - Standard Practice for Measuring Benefit-to-Cost and Savings-to-Investment Ratios for Buildings and Building Systems
• Effective Date: 01-Apr-2020
• Refers: ASTM E1074-15(2020)e1 - Standard Practice for Measuring Net Benefits and Net Savings for Investments in Buildings and Building Systems
• Effective Date: 01-Apr-2020
• Refers: ASTM E1765-16 - Standard Practice for Applying Analytical Hierarchy Process (AHP) to Multiattribute Decision Analysis of Investments Related to Projects, Products, and Processes
• Effective Date: 01-Mar-2016
• Refers: ASTM E1369-15 - Standard Guide for Selecting Techniques for Treating Uncertainty and Risk in the Economic Evaluation of Buildings and Building Systems
• Effective Date: 01-Oct-2015
• Refers: ASTM E1121-15 - Standard Practice for Measuring Payback for Investments in Buildings and Building Systems
• Effective Date: 01-Oct-2015
• Refers: ASTM E1185-15 - Standard Guide for Selecting Economic Methods for Evaluating Investments in Buildings and Building Systems
• Effective Date: 01-Oct-2015
• Refers: ASTM E2204-15 - Standard Guide for Summarizing the Economic Impacts of Building-Related Projects
• Effective Date: 01-Aug-2015
• Refers: ASTM E1057-15 - Standard Practice for Measuring Internal Rate of Return and Adjusted Internal Rate of Return for Investments in Buildings and Building Systems
• Effective Date: 01-May-2015
• Refers: ASTM E964-15 - Standard Practice for Measuring Benefit-to-Cost and Savings-to-Investment Ratios for Buildings and Building Systems
• Effective Date: 01-May-2015
• Refers: ASTM E1074-15 - Standard Practice for Measuring Net Benefits and Net Savings for Investments in Buildings and Building Systems
• Effective Date: 01-May-2015
• Refers: ASTM E631-15 - Standard Terminology of Building Constructions
• Effective Date: 01-Mar-2015

Overview

ASTM E917-17(2023), "Standard Practice for Measuring Life-Cycle Costs of Buildings and Building Systems," provides a comprehensive methodology for conducting life-cycle cost (LCC) analysis of buildings and their systems. Developed by ASTM International in adherence to recognized global standardization principles, this practice enables building owners, managers, architects, and engineers to evaluate and compare the economic performance of design alternatives or system specifications over a designated study period.

Life-cycle cost analysis sums all relevant expenses associated with owning, operating, maintaining, and disposing of a building or system, either in present-value or annual-value terms. By accounting for both initial investments and future costs, LCC assists in making financially sound choices and optimizing facility management.

Key Topics

• Life-Cycle Cost (LCC) Analysis: An economic evaluation technique for comparing competing building designs or systems with similar functional objectives.
• Applicable Costs: LCC calculations include initial investment, design, construction, installation, operation, maintenance, repair, replacement, and disposal costs.
• Present-Value and Annual-Value Terms: Costs can be measured using present-value (discounted to base time) or annual-value (converted to uniform yearly amounts).
• Study Period: Selection of an appropriate analysis timeframe that reflects ownership duration, system service life, or policy guidance.
• Inflation and Discounting: Includes consideration of general price inflation and selection of suitable discount rates reflecting the time value of money.
• Uncertainty and Risk: Techniques such as sensitivity analysis and Monte Carlo simulations are recommended to address input uncertainty and project risk.
• Non-Quantifiable Factors: Guidance is provided for incorporating qualitative factors (e.g., aesthetics or comfort) that may influence decision-making but are difficult to price.
• Alternative Comparison: Requires consistent assumptions and periods across alternatives for valid economic comparison.
• "Do Nothing" Baseline: For nonessential projects, comparison against retaining existing conditions ensures valid cost effectiveness evaluation.

Applications

ASTM E917-17(2023) is widely used for:

• Selecting Building Systems: Comparing HVAC, window, roofing, or other system options over their operational life to identify the most cost-effective choice.
• Sustainable and Efficient Design: Determining whether higher up-front investments (e.g., energy-efficient technologies) are offset by lower operational costs.
• Capital Planning: Assisting owners and facility managers in making informed decisions on renovations, replacements, or new construction based on long-term cost impacts.
• Budgeting and Forecasting: Providing a structured foundation for financial planning, capital allocation, and return-on-investment analysis.
• Public and Institutional Policy: Supporting government and large institution decision-making processes that require justification of building investments using comprehensive economic criteria.
• Risk-Informed Decisions: Addressing the uncertainty and variability in future costs, operating conditions, or economic factors through robust analysis methods.

Related Standards

The LCC method in ASTM E917 is closely linked to other ASTM standards and guides on building economics and financial assessment, including:

• ASTM E631: Terminology of Building Constructions
• ASTM E833: Terminology of Building Economics
• ASTM E964: Measuring Benefit-to-Cost and Savings-to-Investment Ratios
• ASTM E1057: Measuring Internal Rate of Return
• ASTM E1074: Measuring Net Benefits and Net Savings
• ASTM E1121: Measuring Payback for Investments
• ASTM E1185: Selecting Economic Methods for Evaluating Investments
• ASTM E1369: Techniques for Treating Uncertainty and Risk in Economic Evaluation
• ASTM E1765: Applying Analytical Hierarchy Process to Multi-Attribute Decision Analysis
• ASTM E1946: Measuring Cost Risk of Buildings and Building Systems

These standards, in conjunction with ASTM E917, provide a robust toolkit for conducting comprehensive financial analyses throughout the building life cycle.

---

By following ASTM E917-17(2023), stakeholders in the construction and building management sectors can make economically sound, transparent, and justifiable decisions, ensuring optimized investment and operational strategies over the lifespan of building assets.

Standards Content (Sample)

This international standard was developed in accordance with internationally recognized principles on standardization established in the Decision on Principles for the
Development of International Standards, Guides and Recommendations issued by the World Trade Organization Technical Barriers to Trade (TBT) Committee.
Designation: E917 − 17 (Reapproved 2023)
Standard Practice for
Measuring Life-Cycle Costs of Buildings and Building
Systems
This standard is issued under the fixed designation E917; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision. A number in parentheses indicates the year of last reapproval. A
superscript epsilon (´) indicates an editorial change since the last revision or reapproval.
INTRODUCTION
Several methods of economic evaluation are available to measure the economic performance of a
building or building system over a specified time period. These methods include, but are not limited
to, life-cycle cost (LCC) analysis, the benefit-to-cost ratio, internal rate of return, net benefits,
payback, multi-attribute decision analysis, risk analysis, and related measures (see Practices E964,
E1057, E1074, E1121, E1765, and E1946). These methods differ in their measure and, to some extent,
in their applicability to particular types of problems. Guide E1185 directs you to the appropriate
method for a particular economic problem. One of these methods, life-cycle cost (LCC) analysis, is
the subject of this practice. The LCC method sums, in either present-value or annual-value terms, all
relevant costs associated with a building or building system over a specified time period. Alternative
(mutually exclusive) designs or systems for a given functional requirement can be compared on the
basis of their LCCs to determine which is the least-cost means of satisfying that requirement over a
specified study period.
1. Scope conversions to SI units that are provided for information only
and are not considered standard.
1.1 This practice establishes a procedure for evaluating the
1.5 This international standard was developed in accor-
life-cycle cost (LCC) of a building or building system and
dance with internationally recognized principles on standard-
comparing the LCCs of alternative building designs or systems
ization established in the Decision on Principles for the
that satisfy the same functional requirements.
Development of International Standards, Guides and Recom-
1.2 The LCC method measures, in present-value or annual-
mendations issued by the World Trade Organization Technical
value terms, the sum of all relevant costs associated with
Barriers to Trade (TBT) Committee.
owning and operating a building or building system over a
specified time period.
2. Referenced Documents
1.3 The basic premise of the LCC method is that to an
2.1 ASTM Standards:
investor or decision maker all costs arising from an investment
E631 Terminology of Building Constructions
decision are potentially important to that decision, including
E833 Terminology of Building Economics
future as well as present costs. Applied to buildings or building
E964 Practice for Measuring Benefit-to-Cost and Savings-
systems, the LCC encompasses all relevant costs over a
to-Investment Ratios for Buildings and Building Systems
designated study period, including the costs of designing,
E1057 Practice for Measuring Internal Rate of Return and
purchasing/leasing, constructing/installing, operating,
Adjusted Internal Rate of Return for Investments in
maintaining, repairing, replacing, and disposing of a particular
Buildings and Building Systems
building design or system.
E1074 Practice for Measuring Net Benefits and Net Savings
1.4 The values stated in inch-pound units are to be regarded
for Investments in Buildings and Building Systems
as standard. The values given in parentheses are mathematical
E1121 Practice for Measuring Payback for Investments in
Buildings and Building Systems
This practice is under the jurisdiction of ASTM Committee E06 on Perfor-
mance of Buildings and is the direct responsibility of Subcommittee E06.81 on
Building Economics. For referenced ASTM standards, visit the ASTM website, www.astm.org, or
Current edition approved July 1, 2023. Published August 2023. Originally contact ASTM Customer Service at [e-mail]. For Annual Book of ASTM
ε1
approved in 1983. Last previous edition approved in 2017 as E917 – 17 . DOI: Standards volume information, refer to the standard’s Document Summary page on
10.1520/E0917-17R23. the ASTM website.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States
E917 − 17 (2023)
E1185 Guide for Selecting Economic Methods for Evaluat- 5.2 The LCC method is particularly suitable for determining
ing Investments in Buildings and Building Systems whether the higher initial cost of a building or building system
E1369 Guide for Selecting Techniques for Treating Uncer- is economically justified by reductions in future costs (for
tainty and Risk in the Economic Evaluation of Buildings example, operating, maintenance, repair, or replacement costs)
and Building Systems when compared with an alternative that has a lower initial cost
E1765 Practice for Applying Analytical Hierarchy Process but higher future costs. If a building design or system specifi-
(AHP) to Multiattribute Decision Analysis of Investments cation has both a lower initial cost and lower future costs
Related to Projects, Products, and Processes relative to an alternative, an LCC analysis is not needed to
E1946 Practice for Measuring Cost Risk of Buildings and show that the former is the economically preferable choice.
Building Systems and Other Constructed Projects
5.3 If an investment project is not essential to the building
E2204 Guide for Summarizing the Economic Impacts of
operation (for example, replacement of existing single-pane
Building-Related Projects
windows with new double-pane windows), the project must be
2.2 ASTM Adjunct:
compared against the “do nothing” alternative (that is, keeping
Discount Factor Tables - Adjunct to E917 Standard Practice
the single pane windows) in order to determine if it is cost
for Measuring Life-Cycle Costs of Buildings and Building
effective. Typically the “do nothing” alternative entails no
Systems—Includes Excel and PDF Files
initial investment cost but has higher future costs than the
proposed project.
3. Terminology
6. Procedure
3.1 Definitions—For definitions of general terms related to
building construction used in the practice, refer to Terminology
6.1 Follow these steps in calculating the LCC for a building
E631; and for general terms related to building economics,
or building system:
refer to Terminology E833.
6.1.1 Identify objectives, alternatives, and constraints (see
Section 7).
4. Summary of Practice
6.1.2 Establish basic assumptions for the analysis (see 8.1).
4.1 This practice outlines the recommended procedures for 6.1.3 Compile cost data (see 8.2).
computing the LCCs associated with a building or building 6.1.4 Compute the LCC for each alternative (see Section 9).
system over a specified time period. It identifies and gives 6.1.5 Compare LCCs of each alternative to determine the
examples of objectives, alternatives, and constraints for an one with the minimum LCC (see 10.1).
LCC analysis; identifies project data and general assumptions 6.1.6 Make final decision, based on LCC results as well as
consideration of risk and uncertainty, unquantifiable effects,
needed for the analysis; and presents alternative approaches for
computing LCCs. This practice requires that the LCCs of and funding constraints (if any) (see 10.2, 10.3, 10.4, and 10.5).
alternative building designs or systems be compared over a
common time period to determine which design or system has 7. Objectives, Alternatives, and Constraints
the lowest LCC. This practice also states that uncertainty,
7.1 Specify the design or system objective that is to be
unquantifiable effects, and funding constraints shall be consid-
accomplished, identify alternative designs or systems that
ered in the final analysis. It identifies the recommended
accomplish that objective, and identify any constraints that
contents of an LCC report, describes proper applications of the
limit the available options to be considered.
LCC method, provides examples of its use, and identifies
7.2 An example is the selection of a space heating system
limitations of the method. A comprehensive example of the
for a new house. The system must satisfy the thermal comfort
LCC method applied to a building economics problem is
requirements of the occupants throughout the heating season.
provided in Appendix X1. A comprehensive example illustrat-
Available alternatives (for example, various gas furnaces, oil
ing the treatment of uncertainty within the LCC method is
furnaces, heat pumps, and electric baseboard heaters) may have
provided in Appendix X2. Appendix X3 provides a detailed
different types of fuel usage with different unit costs, different
example analyzing the life-cycle cost implications resulting
fuel conversion efficiencies, different initial costs and expected
from energy efficiency improvements in a high school building.
maintenance and repair costs, and different lives. System
Appendix X4 provides a description of the Adjunct.
selection will be constrained to those fuel types available at the
building site.
5. Significance and Use
5.1 LCC analysis is an economic method for evaluating a
8. Data and Assumptions
project or project alternatives over a designated study period.
8.1 Basic Assumptions—Establish the uniform assumptions
The method entails computing the LCC for alternative building
to be made in the economic analysis of all alternatives. These
designs or system specifications having the same purpose and
assumptions usually include, but are not limited to, the
then comparing them to determine which has the lowest LCC
consistent use of the present-value or annual-value calculation
over the study period.
method, the base time and study period, the general inflation
rate, the discount rate, the marginal income tax rate (where
relevant), the comprehensiveness of the analysis, and the
Available from ASTM International Headquarters. Order Adjunct No.
ADJE091717-EA. Original adjunct produced in 1984. Adjunct last revised in 2003. operational profile of the building or system to be evaluated.
E917 − 17 (2023)
8.1.1 Present-Value Versus Annual-Value Calculations— inflation). If the latter is used, a consistent projection of general
The LCCs of project alternatives must be calculated uniformly price inflation must be used throughout the LCC analysis,
in present-value or annual-value terms. In the former, all costs including adjustment of the discount rate to incorporate the
are discounted to the base time; in the latter, all costs are general inflation rate.
converted to a uniform annual amount equivalent to the present
8.1.3.1 When income tax effects are not included in the
value when discounted to the base time. LCC analysis, as in the case of LCC evaluations of nonprofit
buildings and owner-occupied houses (without financing), it is
8.1.2 Study Period—The study period appropriate to the
usually easier to express all costs in constant dollars. Price
LCC analysis may or may not reflect the life of the building or
changes for individual cost categories that are higher or lower
system to be evaluated. The same study period must be used for
than the rate of general inflation can be included by using
each alternative when present-value calculations are used. An
differential rates of price change for those categories.
annual-value LCC may, under certain restrictive assumptions,
be used to compare alternatives with different study periods 8.1.3.2 When income tax effects are included in the LCC
analysis, it is usually easier to express all costs in current
(see 9.2.3). The following guidelines may be useful for
dollars because income taxes are tied to current-dollar cash
selecting a study period for an LCC analysis:
flows rather than constant-dollar cash flows.
8.1.2.1 When analyzing a project from an individual inves-
8.1.4 Discount Rate—The discount rate selected should
tor’s standpoint, the study period should reflect the investor’s
reflect the investor’s time value of money. That is, the discount
time horizon. For a homeowner, the study period for a
rate should reflect the rate of interest that makes the investor
house-related investment might be based on the length of time
indifferent between paying or receiving a dollar now or at some
the homeowner expects to reside in the house. For a commer-
future point in time. The discount rate is used to convert costs
cial property owner, the study period might be based on the
occurring at different times to equivalent costs at a common
anticipated holding period of the building. For an owner/
point in time.
occupant of a commercial building, the study period might
8.1.4.1 Select a discount rate equal to the rate of return on
correspond to the life of the building or building system being
the next best available use of funds. Where the discount rate is
evaluated. For a speculative investor, the study period might be
legislated or mandated for a given institution, that rate takes
based on a relatively short holding period. For investments by
precedence.
government agencies and large institutions, specific internal
8.1.4.2 A discount rate that includes general price inflation
policies often direct the choice of study period.
over the study period is referred to as the “nominal” discount
8.1.2.2 When LCC analyses of alternative building systems
rate in this practice. A discount rate expressed in terms net of
or design practices are performed for general information
general price inflation is referred to as the “real” discount rate.
rather than for a specific application (for example, government
8.1.4.3 A nominal discount rate, i, and its corresponding real
or industry research to determine the cost effectiveness of
discount rate, r, are related as follows:
thermal insulation or high-efficiency heating and cooling
equipment in typical installations), the study period will often
11i
r 5 2 1 or i 5 ~11r!~11I! 2 1 (1)
coincide with the service life of the material or system (but be
11I
limited to the typical life of the type of building where it is to
where:
be installed). When the service life is very long, a more
I = the rate of general price inflation.
conservative choice for the study period might be used if the
uncertainty associated with the long-term forecasting of costs
8.1.4.4 Use a real discount rate if estimates of future costs
substantially reduces the credibility of the results.
are expressed in constant dollars, that is, if they do not include
8.1.2.3 Regardless of the type of investor or purpose of the
general inflation.
analysis, use the same study period for all categories of costs
8.1.4.5 Use a nominal discount rate if estimates of future
when calculating the present value of any cost associated with
costs are expressed in current dollars, that is, if they include
a project. Furthermore, when comparing alternative designs or
general inflation.
systems on the basis of their present-value LCCs, use the same
8.1.4.6 When alternative building or system designs are
study period for each investment alternative.
compared using the LCC method, use the same discount rate in
8.1.2.4 When the study period selected is significantly each LCC computation.
shorter than the service life of the building or system evaluated,
8.1.5 Comprehensiveness—Different levels of effort can be
it is important that a realistic assessment of the project’s resale
applied in undertaking an LCC analysis. The appropriate level
(or residual) value at the end of the study period be included in
of comprehensiveness depends upon the degree of complexity
the LCC analysis. Even if the building will not be sold at that
of the problem, the intended purpose of the evaluation, the
time, the resale value will likely have a significant impact on
level of monetary and nonmonetary impacts contingent upon
the LCC.
the investment decision, the cost of the different levels of
comprehensiveness, and the resources available to the investor
8.1.3 Inflation—General price inflation is the reduction in
the purchasing power of the dollar from year to year, as or decision maker.
measured, for example, by the percent increase in the gross 8.1.5.1 Some anticipated effects are more difficult to quan-
national product (GNP) deflator over a given year. LCC tify in monetary terms than others. Include effects that are
analyses can be calculated in constant-dollar terms (net of difficult to quantify through the use of multi-attribute decision
general inflation) or in current-dollar terms (including general analysis (see Practice E1765). (See 10.4 for more information
E917 − 17 (2023)
on unquantifiable effects.) Overlooking or omitting significant 8.2.6.1 Cash flows may be single events, such as a one-time
factors from an LCC evaluation diminishes the comprehensive- replacement cost or a resale value. They may be recurring and
ness and usefulness of the evaluation. relatively constant in nature, such as routine maintenance costs,
8.1.5.2 Comprehensiveness requires that all suitable alter- or they may occur at regular intervals but change over time at
natives be considered when selecting among alternative de-
some projected rate of increase or decrease, such as energy
signs or systems for a particular purpose. costs.
8.1.6 Income Taxes—For building investments that are sub-
8.2.6.2 Cash flows may occur in lump-sum amounts, con-
ject to income tax, include in the analysis adjustments of
centrated at a certain time of the year, such as an annual
capital costs, expenses, and resale value to reflect income tax
insurance premium. They may be spread out evenly over the
effects (see 9.3).
year, such as salaries, or they may occur irregularly during the
year. Rather than accounting for the specific pattern of each
8.2 Cost Data—Compile the cost data required to estimate
cash flow, a simplifying model of cash flow is usually adopted
the LCC of each alternative design or system to be evaluated.
for an LCC analysis. In the simplified model, all cash flows in
This includes the timing of each cost as it is expected to occur
a given year are assumed to occur at the same point in time
during the study period.
within the year, usually at the end of the year. This simplifying
8.2.1 The measurement of the LCC of a building design or
building system requires data on initial investment costs, assumption normally provides sufficient accuracy for the LCC
including the costs of planning, design, engineering, site analysis while reducing computational requirements. (The
acquisition and preparation, construction, purchase, and instal- discounting methods outlined in Section 9 are all based on
lation; financing costs (if specific to the investment decision); end-of-year cash flows.)
annually and non-annually recurring operating and mainte-
8.2.7 Current Dollar Analysis—When all cash flows over
nance costs (including, for example, scheduled and unsched-
the study period are to be denominated in current dollars (that
uled maintenance, repairs, energy, water, property taxes, and
is, when general price inflation is included in projecting all
insurance); capital replacement costs; and resale value (or
future costs), the following guidelines apply:
salvage/disposal costs).
8.2.7.1 Future cash flows that are fixed in amount (such as
8.2.2 Data will also be needed for functional use costs if
loan payments) should be used without adjustments.
these costs are significantly affected by the design or system
8.2.7.2 Future cash flows that are expected to change at
alternatives considered. These are costs related to the perfor-
rates significantly different from the general rate of price
mance of the intended functions within the building, such as
increase (for example, energy costs) should be estimated on the
salaries, overhead, services, and supplies.
basis of the specific rate of price change expected, be it faster
8.2.3 The shorter the study period selected for the LCC
or slower than the general rate of price inflation.
analysis relative to the expected useful lifetime of the project
8.2.7.3 All other future cash flows should be estimated to
being considered, the more important the assessment of resale
reflect the rate of general price inflation.
value becomes, even if the building or system will not be sold
at the end of the study period. Where relevant, deduct tax 8.2.8 Constant Dollar Analysis—When all cash flows over
liabilities due to anticipated gains in asset value. the study period are to be denominated in constant dollars (that
8.2.4 Omit from LCC evaluation costs that are not signifi- is, when general price inflation is excluded in projecting all
cantly affected by the design decision or system selection. future costs), the following guidelines apply:
8.2.5 To select among design or system alternatives solely
8.2.8.1 Cash flows expected to increase at the same rate as
on the basis of the lowest LCC presumes that each alternative
general price inflation require no adjustment. Their values
is at least capable of satisfying the project requirements and
should be stated in base-year dollars.
that the analyses have been conducted using the same opera-
8.2.8.2 Future costs expected to change faster (slower) than
tional profile. When there are performance advantages that
the rate of general price inflation, I, can be estimated in
favor one alternative over another, make an adjustment to
base-year constant dollars by multiplying the base-time value
incorporate such differences into the LCC measure. For
of such costs by the differential rate of price change (see Note
example, adjustments are needed to reflect higher rental
1) for that cost category, as follows:
income, higher sales, improved comfort, or improved em-
t
C 5 C ~11e! (2)
t 0
ployee productivity for one design relative to the other. Make
this adjustment to the LCC by subtracting the value of any
where:
improvement in performance from the corresponding costs of
e = the differential price escalation rate,
that alternative in each year that such differences occur.
C = the constant-dollar value of a cost in year t, and
t
However, do not use the LCC method if such improvements
C = the cost at the beginning of the study period (the base
are large relative to the cost differences among alternatives (see
time).
13.1).
8.2.8.3 The differential rate of price change, e, and the
8.2.6 Timing of Cash Flows—In addition to compiling all
actual rate of price change, E, are related as follows:
relevant costs, the timing of each cash flow must be deter-
mined. The time of occurrence is needed so that costs incurred
11E
e 5 2 1 or E 5 11e 11I 2 1 (3)
~ !~ !
at different points in time can be discounted to their time-
11I
equivalent values before summation.
E917 − 17 (2023)
NOTE 1—In Eq 2 and Eq 3, e and I are assumed to be constant over the
where:
study period. If e and I are not the same in each time period i, then:
C = the sum of all relevant costs occurring in year t,
t
C 5 C 11e 11e . . . 11e N = length of study period, years, and
~ !~ ! ~ !
t 0 1 2 t
where: i = the discount rate.
11E
i
9.1.2 For example, at the base time (t = 0), C is typically
e 5 2 1 or E 5 11e 11I 2 1 t
~ !~ !
i i i i
11I
i
equal to the initial investment cost; in each subsequent year
(t = 1 to N), C is typically equal to the sum of operating,
t
9. Compute LCC
maintenance, and replacement costs in that year; at the end of
9.1 To compute the LCC of a building or building system,
the study period (t = N), C also typically includes a credit for
t
all relevant cash flows in periods t = 0 through t = N are
the resale value of the project.
discounted to a common point in time and summed.
9.1.1 Conceptually, the computation of an LCC in present- 9.2 For ease of computation, the following equivalent ap-
value terms (PVLCC) can be represented as: proach can be used instead of Eq 4:
N
9.2.1 Find the present value (PV) of each cost category (for
C
t
PVLCC 5 (4)
t
( example, initial cost (IC), maintenance and repairs (M), re-
11i
~ !
t50
placements (R), fuel (F), and resale value (S)), using the
appropriate discount formula as found in Table 1, or the
The NIST Building Life-Cycle Cost (BLCC) Computer Program helps users
equivalent discount factor from the adjunct Discount Fac-
calculate measures of worth for buildings and building components that are
tor Tables (see 2.2). Then sum these present value amounts to
consistent with ASTM standards. The program is downloadable from http://
find PVLCC, as shown in Eq 5.
www.eere.energy.gov/femp/information/download_blcc.html.
TABLE 1 Discount Formulas
A,B
Equation Name Schematic Illustration Application Algebraic Form
N
Single compound amount (SCA) to find F when P is known
F5 P· 1 1 i
fs d g
Single present value (SPV) to find P when F is known
P5F·
S ND
s11id
i
Uniform sinking fund (USF) to find A when F is known
A5F·
S D
N
s11id 21
N
is11id
Uniform capital recovery (UCR) to find A when P is known
A5P·
S D
N
s11id 21
N
s11id 21
Uniform compound amount (UCA) to find F when A is known
F5A·
S D
i
N
s11id 21
Uniform present value (UPV) to find P when A is known
P5A·
S D
N
i 11i
s d
11e 11e
Modified uniform present to find P when known A is
N
P5A · · 12
C S D F S D G
value (UPV*) escalating at rate e i2e 11i
where:
P = present sum of money,
F = future sum of money equivalent to P at the end of N periods of time at i interest or discount rate,
A = end-of-period payment (or receipt) in a uniform series of payments (or receipts) over N periods at i interest or discount rate,
A = initial value of a periodic payment (receipt) evaluated at the beginning of the study period,
t
A = A ·(1 + e) , where t = 1, . , N,
t 0
N = number of interest or discount periods,
i = interest or discount rate, and
e = price escalation rate per period.
A
Note that the USF, UCR, UCA, and UPV equations yield undefined answers when i = 0. The correct algebraic forms for this special case would be as follows: USF
formula, A = F/N; UCR formula, A = P ⁄N; UCA formulas, F = A·N. The UPV* equation also yields an undefined answer when e = i. In this case, P = A ·N.
B
The terms by which the known values are multiplied in these equations are the formulas for the factors found in Discount Factor Tables. Using acronyms to represent
the factor formulas, the discounting equations can also be written as F = P·SCA, P = F·SPV, A = F ·USF, A = P·UCR, F = A·UCA, P = A ·UPV, and P = A ·UPV*.
C
To find P when A changes from year to year at a different rate each year (either due to a change in price or a change in physical quantity, or both), use the following
t
equation:
N
A
t
P 5
o t
11i
s d
t51
where:
A = A · (1 + e ), and
t t−1 t
e = the rate of change in A for year t.
t
E917 − 17 (2023)
PVLCC 5 IC1PVM1PVR1PVF 2 PVS (5) shortest time period into which each of the system lives can be
divided with no remainder).
Note that resale value, when explicitly expressed as a
9.2.4 Table 2 illustrates the use of the discount formulas and
positive cash flow, is subtracted from the other cost categories
factors to find present values and annual value equivalents for
in calculating the PVLCC. (If the cost of removal results in a
the set of cost data displayed in Fig. 1 (see Note 2). Fig. 2
negative cash flow, this should be added to the other cost
illustrates graphically the relationship between these data and
categories.)
their equivalent present values.
9.2.2 Each of the following patterns of cash flows has a
specific type of discounting procedure that can be used to NOTE 2—For any given set of cost data and assumptions, the present
value of an investment and the annual value of the same investment are
expedite the calculation of the present value for each cost
time-equivalent values.
category:
9.3 Income Tax Adjustments—For investor-owned building
9.2.2.1 Amounts expected to occur at a single point in time
facilities, income tax adjustments (including tax credits, if any)
(for example, capital replacement costs and resale value) can
may be a significant factor in determining the cost effectiveness
be discounted to present value by multiplying that amount by
of alternative building designs or system selection. Therefore,
the single present value factor for the specified time and
include them in the analysis.
discount rate.
9.3.1 One method of including income tax effects is to
9.2.2.2 Amounts expected to occur in approximately the
adjust all costs that are tax deductible to their after-tax
same amount from year to year (for example, operating and
equivalents before discounting, deduct any tax credits from
maintenance (O and M) costs when expressed in constant
investment costs, establish a depreciation schedule for capital
dollars) can be discounted to present value by multiplying the
components and compute the corresponding tax savings in
annual cost by the uniform present value factor for the
each year, and adjust the resale value (if any) for additional tax
specified study period and discount rate.
liabilities or savings related to capital gains, capital losses, and
9.2.2.3 Amounts changing over time at some projected rate
depreciation recapture, as appropriate. Calculate the present
(for example, energy costs) can be discounted to present value
value of each cash flow category and the depreciation tax
by multiplying the annual cost, as of the base time, by the
savings and sum these present values to find the after-tax
modified uniform present value factor for the specified study
PVLCC. Note that the present value of the depreciation tax
period and discount rate.
savings is treated as a negative cost and therefore has a
9.2.2.4 Initial investment costs (or any other costs occurring
negative sign in the PVLCC equation.
at time t = 0) need not be discounted to present value since they
9.3.2 An alternative method of including income tax effects
are already stated in present-value terms.
is to establish a separate category for all income tax adjust-
9.2.3 The LCC, or any present-value amount, may also be
ments in each year, calculate these annual amounts and
expressed in equivalent annual-value terms (AV) by multiply-
discount them to present value, sum them, and adjust the
ing the present-value amount by an appropriate uniform capital
PVLCC accordingly.
recovery (UCR) factor, as shown in Table 1. The annual-value
LCC may be used, under restrictive assumptions, to compare
10. Compare LCCs and Make Final Decision
alternative building systems using different study periods. This
approach assumes that all costs for each system are exactly 10.1 After computing LCC measures for each alternative
replicated with each replacement for a length of time equal to design or system to be considered, compare them to determine
the lowest common multiple of system lives (that is, the which alternative has the lowest LCC.
TABLE 2 Illustration of Discounting Cash Flows
(Based on Study Period of 10 Years and Real Discount Rate of 8 %)
Discounting to Present Value Equivalents Discounting to Annual Value Equivalents
Description of Cash Flow
Discount Corresponding
Discount Corresponding Present Value, Annual Value,
(1) A B C D
Formula Discount Factor
Formula Discount Factor Dollars Dollars
(2) (3) (4) (5) (6) (7)
E
Initial investment cost of $6000 n.a. 1 6000 UCR 0.14903 894
F
Replacement cost in fifth year of $500, SPV 0.6806 340 UCR 0.14903 51
constant $
Yearly (non-energy) O and M cost over 10 UPV 6.710 671 UCR 0.14903 100
F
years of $100, constant $
Yearly energy cost over 10 years, valued at UPV* 8.5923 8593 UCR 0.14903 1281
$1000 at the beginning of the study
period, escalating at a differential rate of
F
5 % per year
Resale value of $1200 at end of tenth SPV 0.4632 556 UCR 0.14903 83
year, constant $
A
From Table 1.
B
From Discount Factor Tables Adjunct.
C
Column 4 = amount in column 1 × discount factor in column 3.
D
Column 7 = amount in column 4 × discount factor in column 6.
E
No discounting necessary.
F
Payments to occur at the end of the year.
E917 − 17 (2023)
NOTE 1—Arrows above the scale indicate expenditures (cash outflows). Arrows below the scale indicate receipts (cash inflows).
FIG. 1 Illustration of Cash Flow Diagram
10.1.1 If the overall performance of the alternatives is economic viability of a project changes as, for example, fuel
otherwise equal, or if performance differences have been taken price escalation, discount rates, study periods, and other critical
into account in the computation of the LCCs, the alternative
factors vary.
with the lowest LCC is preferred on economic grounds.
10.3.1.1 To illustrate, Fig. 3 shows the sensitivity of the
10.1.2 If a proposed project is nonessential to the building
present-value of fuel savings to three critical factors: study
operation, compare it against the LCC of the “do-nothing”
periods (0 years to 25 years), discount rates (0 %, 5 %, 10 %,
alternative. Select the alternative with the minimum LCC,
and 15 %), and energy price escalation rates (0 %, 5 %, 10 %,
other things equal.
and 15 %).
10.2 The decision process for selecting among alternatives
10.3.1.2 Note that, other things being equal, present-value
includes consideration of not only the comparative LCCs of savings increase over time, but more slowly with higher
competing designs, but the risk exposure of each alternative
discount rates and more quickly with higher price escalation
relative to the investor’s tolerance for risk, any unquantifiable
rates. The impact of fuel price escalation is most apparent when
aspects attributable to the design alternatives, and the avail-
comparing the top curve of the graph (i = 0.10, e = 0.15) with
ability of funding and other cash-flow constraints.
one close to the bottom (i = 0.10, e = 0). The present value of
$1000 of fuel savings per year over 25 years is about $50 000
10.3 Risk and Uncertainty—Decision makers typically ex-
for a discount rate of 10 % and a fuel price escalation of 15 %,
perience uncertainty about the correct values to use in estab-
and only about $9000 for the same discount rate and an
lishing basic assumptions and in estimating future costs. Guide
escalation rate of 0 %, other things being equal. Whereas the
E1369 recommends techniques for treating uncertainty in input
quantity of energy savings and initial prices are the same in all
values to an economic analysis of a building investment
of the cases shown, the present value of the dollar savings
project. It also recommends techniques for evaluating the risk
varies widely depending on the selection of the escalation rate
that a project will have a less favorable economic outcome than
of fuel prices and the discount rate.
what is desired or expected. Practice E1946 establishes a
procedure for measuring cost risk for buildings and building 10.3.1.3 Although impact scenarios such as those illustrated
systems, using the Monte Carlo simulation technique as in Fig. 3 do not show the analyst what parametric values to
described in Guide E1369. choose, they do show decision makers the sensitivity of the
10.3.1 Sensitivity analysis is a test of the outcome of an results to alternative assumptions. Knowing the consequences
analysis to alternative values of one or more parameters about of error may help analysts make better decisions about conser-
which there is uncertainty. It shows decision makers how the vation investments with uncertain outcomes.
E917 − 17 (2023)
NOTE 1—Cash flows correspond to those given in Fig. 1, and present values correspond to those given in Table 2
.
FIG. 2 Illustration of Discounting Cash Flows to Present Value
10.3.2 Probability analysis, sometimes called expected- would differ depending on which year the analyst selects as the
value analysis, can be used to evaluate the costs and benefits of likely time of replacement. For example, if year eight were
an event whose expected chance of occurrence can be pre- selected, then the present value cost would be $374
dicted. Historical data, if available, can be used to generate ($800·0.467). The expected value of the compressor
probability data for existing technologies. Computer simula- replacement, on the other hand, as measured in present dollar
tion is sometimes used to generate data on innovative tech- terms using probability analysis, is shown in Table 3 to be
nologies when historical data are not available. $385. While it is unlikely that the exact cost of replacing the
10.3.2.1 Table 3 illustrates the application of probability compressor will be predicted using a probabilistic approach,
analysis to the problem of estimating the cost of replacing the generally, over a large number of applications, the difference
compressor of a heat pump when the year of replacement is between the actual cost and the predicted cost will be less than
uncertain. The present value of the compressor replacement in the case where a single point estimate is used.
E917 − 17 (2023)
NOTE 1—i = discount rate, and e = energy escalation rate.
FIG. 3 Sensitivity of Present Value Energy Savings to Study Periods, Discount Rates, and Energy Escalation Rates
TABLE 3 Expected Value of Cost of Compressor Replacement
experimental design (Practice E1946 recommends 1000 or
more iterations). A comprehensive example on the application
NOTE 1— Expected Value of Cost = Cost × Probability × SPV.
of Monte Carlo simulation in combination with the LCC
Expected
Year of SPV 10 %
method is provided in Appendix X2.
Probability Cost ($) Present Value
Replacement Discount Rate
Cost ($)
10.3.3.3 In order to provide a concise summary of the
6 0.1 800 0.565 45
results of the Monte Carlo simulation, report ranges of values
7 0.2 800 0.513 82
or computed statistics for LCC or any other measures of
8 0.6 800 0.467 224
9 0.1 800 0.424 34 economic performance analyzed in the Monte Carlo simula-
Expected value of compressor replacement: $385
tion.
10.4 Unquantifiable Effects—Where the effects of one de-
sign relative to another are difficult to quantify but are
important to the decision maker, list these in the LCC report,
10.3.2.2 Supporting statistical analysis, such as computation
along with guidance as to their relative importance in the final
of the standard deviation from the expected present value, is
selection. For example, it may be difficult to place a dollar
useful in assessing the likely variation from predicted results.
value on the aesthetic appearance of a building facade or a
10.3.3 Monte Carlo simulation varies a small set of key
view from a window, but these may be important consider-
input variables either singly or in combination according to an
ations in selecting among alternative building designs. The
experimental design. Associated with each input variable is a
unquantifiable effects may either reinforce or offset the quan-
probability distribution function from which values are ran-
tifiable aspects of the analysis and therefore should not be
domly sampled. The major advantage of a Monte Carlo
overlooked in the decision. For a formal method of accounting
simulation is that it permits the effects of uncertainty to be
for unquanifiable effects, see Practice E1765 on multi-attribute
rigorously analyzed.
decision analysis.
10.3.3.1 In a Monte Carlo simulation, not only the expected
value of LCC can be computed but also the variability of that
10.5 Funding Constraints—When insufficient funding is
value. In addition, probabilistic levels of significance can be
available to finance the project alternative with the lowest
attached to the computed LCC value for each alternative under
LCC, the economic solution may be constrained to an alterna-
consideration.
tive with a lower initial cost but higher future costs. The
10.3.3.2 Monte Carlo simulation is especially useful when
alternative with the lowest LCC that fits within the funding
performing economic evaluations of alternatives designed to
constraint is the most economical choice under these condi-
mitigate the effects of natural or man-made, or both, hazards
tions.
that occur infrequently but have significant cost consequences.
To insure that low-probability, high-consequence outcomes are
11. Report
adequately sampled in the Monte Carlo simulation, do the
11.1 Report the following information:
following. Postulate a probability distribution (for example,
uniform or triangular) and a range of values for each of the 11.2 A report of an LCC analysis should state the objective,
outcome probabilities having the highest cost consequences. the constraints, the alternatives considered, the key assump-
Include these outcome probabilities explicitly as variables in tions and data, the present-value or annual-value, or both, of
the experimental design, recognizing that for a given hazard, each cost category, and the total present-value or annual-value
the sum of all outcome probabilities is 1.0. Set the number of LCC, or both, of each alternative. Items whose values should
iterations for the Monte Carlo simulation high enough to be made explicit include the discount rate; the study period; the
ensure adequate sampling of each variable included in the main categories of cost data, including initial costs, recurring
E917 − 17 (2023)
and nonrecurring costs, and resale values; grants; tax deduct- most economical choice, unless unquantifiable effects or riski-
ibles; credits and expenses; and financing terms if integral to ness of the technology or fuel availability, or both, weighed
the decision-making process. The tax status of the investor against this choice.
should be given. The method of treating inflation should be
12.4 If a number of non-mutually exclusive projects (for
stated. Assumptions or costs that have a high degree of
example, retrofitting a high-efficiency heating system, a high-
uncertainty and are likely to have a significant impact on the
efficiency lighting system, and new windows in an existing
results of the analysis should be specified and the sensitivity of
building) are being considered for a single facility for which a
the results to these assumptions or data described. Any signifi-
single overall LCC can be calculated, and a limited budget is
cant effects that remain unquantified should be described in the
available to fund those projects, use LCC analysis to allocate
LCC report.
that budget efficiently. The combination of projects resulting in
11.3 A generic format for reporting the results of an LCC the lowest overall LCC for that facility, and whose overall
analysis is described in Guide E2204. It provides technical funding requirement fits within the budget constraint, is the
persons, analysts, and researchers a tool for communicating most economic combination.
results in a condensed format to management and non-
13. Limitations
technical persons. The generic format calls for a description of
the significance of the project, the analysis strategy, a listing of
13.1 LCC analysis is not the method of choice when
data and assumptions, and a presentation of LCC and any other
alternative building designs or systems result in different
measures of economic performance. The example presented in
revenue streams (for example, generate different rental in-
Appendix X2 is summarized using the generic format.
come) or result in other benefits related to the overall perfor-
mance of the building (for example, more usable space). In
12. Applications
these cases economic evaluation methods that pay more
12.1 The LCC method is used to determine whether or not
explicit attention to benefits should be used. These alternative
a given project that is expected to reduce future costs is
methods include the net benefits, benefit-to-cost ratio, internal
economically justified. For example, the replacement of an
rate of return, and payback methods.
inefficient heating plant with a new, high-efficiency unit can be
13.2 The LCC method is not suitable for allocating a limited
evaluated using the LCC method.
budget among a number of non-mutually exclusive projects
12.2 The LCC method is also used to determine the efficient
(where the acceptance of one does not preclude the acceptance
scale of investment when several levels of investment are
of others), unless all of the projects can be meaningfully
under consideration. For example, the most economic level of
combined into the single overall LCC meas
...