Life cycle cost analysis (LCCA) is a tool used to compare the total costs of an asset or alternative throughout its life cycle. Costs in the analysis include initial capital costs (e.g. planning, design, construction etc.) and all future costs (e.g. inspection, maintenance, rehabilitation, replacement etc.). Costs are assigned to all future activities occurring in the analysis period, and these future expenditures are then converted into present day dollars.
Why is it important?
LCCA brings all costs of each alternative to a common point in time to achieve a fair comparison. LCCA can readily identify the option with the lowest total cost based on present value of all initial and future costs. The most economical option in the long term is not always the option with the lowest capital or initial costs. When whole-life cost of an asset or alternative must be considered, an LCCA should be performed to determine the most economical route.
How does LCCA relate to rigid vs. flexible products?
An LCCA can be performed to evaluate several competing products or replacement strategies. Often, it is efficient to choose, or award, one competing option over another based on lowest initial costs. But this may not be the most cost-effective decision.
An example of this is a new culvert installation or replacement. A flexible product, such as corrugated steel pipe (CSP), may appear to cost less to install than a rigid product such as precast concrete pipe (of course, this is not normally the case where flexible pipe is installed in strict accordance with manufacturers’ recommendations). Initial material costs may also be less for the flexible product. However, an LCCA can illustrate how choosing the option with the lowest initial costs is not always the most economical option.
The total whole-life costs of the flexible product will almost always exceed the whole-life costs of the rigid product. The flexible product bears future costs of several rehabilitations and likely replacement, so it will outweigh the higher initial costs of the precast concrete pipe. Precast concrete pipe, unlike the CSP pipe, will have a longer service life (up to 100 years or more), resulting in less repairs and no replacements.