COSTING AND ESTIMATING II

(BSS 562)

LIFE CYCLE COST

DR NOREHAN HAJI MOHD NOOR

BUILDING SURVEYING DEPARTMENT,
FACULTY OF ARCHITECTURE, PLANNING & SURVEYING,
UiTM PERAK
 CONTENT
1. Introduction
2. Definition
3. Concepts
4. Uses
5. LCC data
6. Valuation data
7. Exercise
 INTRODUCTION
• A technique to establish
• h the total cost of ownership.
• A structured approach that addresses all the elements of this
cost
• To produce a spend profile of the product or service over its
anticipated life-span.
• The results of an LCC analysis can be used to assist
management in the decision making process where there is a
choice of options.
• The accuracy of LCC analysis diminishes as it projects further
into the future, so it is most valuable as a comparative tool
when long term assumptions apply to all the options and
consequently have the same impact.
 DEFINITION
Is an economic evaluation technique that concerns the
assessment of the total cost of an asset over its operating
life, including initial capital costs, maintenance costs,
operating costs and the cost or benefit of the eventual
disposal of the asset at the end of its life
(Flanagan et al, 1989)

TASK: DEFINE WITH EXAMPLES

initial capital costs, maintenance costs, operating costs
• INITIALS COST
- include the owner’s cost associated with the
initial development of a facility.
- e.g: land, professional fees
• MAINTENANCE COST
- includes costs of regular custodial care and
repair, annual maintenance contracts and
salaries of the facility’s staff performing
maintenance tasks.
• OPERATING COST
- are used to keep track of such items as fuel
and salaries required to operate the facility.
 BUILDING LIFE CYCLE MODEL
BIRTH LIFE DEATH

RENEWABLE/
REPLACEMENT
BLDG ELEMENT

INCEPTION DESIGN BUILD PHYSICAL

LEGAL

PHYSICAL OCCUPY ECONOMIC

ALTER / DEMOLISH
LEGAL ADAPT SOCIAL
EXISTING
ECONOMIC TECHNOLOGY
ALTER/
SOCIAL
MODIFY
TECHNOLOGY EXTEND

COST-IN-USE

Flanagan, R & Furbur, J.D. (1989), Life cycle costing for construction, London: Surveyors Publication
 COST-IN-USE
As those costs, which are associated with a building or
structure while the projects is in commission by the owner
or occupier.

Therefore, cost-in-use are recurring costs, which may be

either annual or periodic in nature.
 C O N C E PT
• ‘Money today’ is not equivalent to ‘Money
tomorrow’

• Basically, the value of our monies over

time is influenced by interest and inflation
rates.

• To quantify the impact of interest rate in

relating ringgit spent today and ringgit
spent in the future, several interest
formulas are used.
 LIFE CYCLE COSTING
THE IMPORTANCE OF LCC
Decision making tool
• that it could be used to select among alternative projects, designs, or
building components.

Management tool
• that it could be used to estimate the costs that will incur during a
building’s life.

Maintenance guide.
• that it could be used to forecast the maintenance and operating tasks
that will incur at each year of a building’s life
(Kirk & Dell’Isola, 1995).
 THE IMPORTANCE OF LCC

Decision making tool Management tool Maintenance guide.

LIFE CYCLE COSTING TECHNIQUE
Life Cycle Costing could be applied at any stage of
procurement
• inception stage
 to select among alternative projects
 where only the client requirements are known the life
cycle costs are estimated in broad terms based on costs
that incurred in similar buildings in the past.
• detailed design stage
 To select among different design options or building
components.
 LIFE CYCLE COSTING DATA
PHYSICAL DATA
OCCUPANCY DATA
•Superficial Floor Area
•Occupancy profile
COST DATA •Types of boiler/
•Functionality
•Acquisition Cost •Hours of use heating system
•Capital Cost •Window Area
•Particular Feature
•Taxes •Functional Area
•Inflation •Number of occupants
•Discount Rate •Walls and Ceiling
TYPES OF LIFE •No. of sanitary fittings
•Management Cost
CYCLE DATA
•Replacement Cost
•Maintenance Cost
•Operating Cost QUALITY DATA
•Cleaning Cost Condition of
•Demolition Cost •Sanitary Fittings PERFORMANCE DATA
•Insurance •Pipe work •Maintenance cycles
•Redecoration Cost •Furnishing •Cleaning cycles
•Minor New Works •Boiler •Thermal conductivity
•Energy •Decorations •Occupancy time
•Fabrics •Electricity
•Road surfacing •Gas
 MAINTENANCE COSTS
Costs to cover works associate with
maintaining the building intended
purposes.
•
POOR ? GOOD

ADEQUAT CORRECT
E

INADEQUATE INCORRECT
? ?
INITIAL SUBSEQUENT
REPAIR
CORRECT INCORRECT
? CORRECT INCORRECT
 REDECORATION
• Normally follow a predetermined cycle
• Can be anticipated
• Delays in external redecoration can be sometimes result in cost of all proportion
to the apparent saving
 ENERGY
• Heating, lighting, cooling and power requirement of
building
 CLEANING
• labour intensive activity
• Offices tend to have higher cleaning cost than most of other type
building
 INSURANCES
• Rateable value of the building
• Rateable value is largely determine by:-
• Location
• Size
• Provision of amenities
• Insurances cost is largely self determined by the
nature of project
• Factors influencing insurance premium are:
• Type of building
• History of insurance claims
FACTORS TO CONSIDER IN “COST IN USE”
CALCULATION
 COST OF BUILDING/
COMPONENTS

CAPITAL RUNNING
COSTS REPLACEMENTS
COSTS
CLEANING

DECORATIONS REPAIRS
COOLING/
HEATING
 COMPOUND INTEREST
DISCOUNTING COMPOUNDING
VALUE FOR
MONEY
PRESENT SUM
FUTURE SUM
COMMON BASIS

CALCULATING ANNUAL SINKING

AMOUNT OF RM 1
TECHNIQUE FUND

AMOUNT OF RM 1 PRESENT OF RM 1
PER ANNUM PER ANNUM
PRESENT OF RM 1
 VALUATION CALCULATION -YIELD AND COST
DEVELOPMENT
As a Valuer, their role and function is: -
Estimating Property Values And Maintenance Cost, Start
From Building Occupied.

A Building Surveyor should know to forecast and proficient

to make some considerations and conclusions on the 'future
cost' of building, such as net income which are available, the
possibility of such revenues increase or otherwise, & predict
returns that may obtained by buyer.

This assessment is subject to experience and skills of valuer

/ BS.
TERDAPAT ‘TOOLS’ ATAU ELEMEN PENGIRAAN YG
MEMBOLEHKAN PENGIRAAN DILAKUKAN. ELEMEN INI
DINAMAKAN SIFIR PENILAIAN / METHOD OF
VALUATION.
LCC -
METHOD OF VALUATION
By norehan haji mohd noor
METHOD OF VALUATION / SIFIR PENILAIAN .

• Fungsi Sifir2 Ini Memudahkan Tugas Bs / Jurunilai

Dlm Proses Memberi Kesimpulan Tersebut Dlm
Bentuk Satu Angka Yang Mencerminkan Nilai.

• Sifir2 Ini Adalah Berdasarkan Kpd ‘Parry’s

Valuation Tables (Estates Gazette)’ - Cetakan Ke 10.
•
 AMOUNT OF 1

(1+i)n

or, summarized as;

A = ( 1 + i )n

• To calculate how a certain principal will increase over

a term of years when invested at a certain rate of
interest.
 AMOUNT OF 1
• Show how much RM 1.00 invested at the beginning of the
year will accumulate an “i” compound interest in “n”.
• This table is based on the assumption that if RM 1.00 is
invested for a given number of years (n) at a specific interest
(i), at the end of the period the investor will receive his
original RM 1.00 together which accumulate on it.

n = 1 year
 
2016
Beginning of year end of year
AMOUNT OF 1
• Angka Drp Sifir Ialah Jumlah Modal Terkumpul Di Akhir Jangkamasa N
Tahun Jika Rm 1 Dilaburkan Dgn Kadar Faedah I % Di Awal Tahun
Pertama.

• Ini Bermakna Rm 1 Dilabur Di Awal Tahun 1 Telah Menjadi Rm (1 + I) 3 Di

Akhir Tahun 3.

• BOLEH DISIMPULKAN :-
• PADA AKHIR TAHUN 1, JUMLAH TERKUMPUL (1 + i)1
• PADA AKHIR TAHUN 2, JUMLAH TERKUMPUL (1 + i)2
• PADA AKHIR TAHUN 3, JUMLAH TERKUMPUL (1 + i)3
• PADA AKHIR TAHUN 4, JUMLAH TERKUMPUL (1 + i)4
Say,
Client has spent RM150,000 for a development.
What is the value of this investment after 10
years on an interest rate of 10% per annum?

= RM150,000 x ( 1 + i ) n
= RM150,000 x ( 1 + 0.1 ) 10
= RM150,000 x 2.5937
= RM389,055*

* Total amount , if invested for 10 years at an interest rate of 10% per annum
 AMOUNT OF 1 PER ANNUM

(1+i)n-1
i

To calculate how a certain principal will increase over a term of

years when invested at regular interval in certain rate of interest.

Untuk mengira bagaimana prinsipal tertentu akan meningkat dalam tempoh

beberapa tahun apabila dilaburkan pada jangka masa yang tetap dalam kadar
faedah tertentu.
• An annuity – series of periodic payments usually (but not necessarily equal in
amount.
• An annuity payments/earning.

• Beginning of each period (advanced rental payment).

• End of each period, such as amortization payments (e.g. payment for plant).

• Is in effect an addition of the compound interest amount of each payment over this
period years that each payment remain invested.
• The amount which RM 1.00 invested at the end of each year will accumulate at “i”
compound interest in “n”.
A developer will spend RM15,000 each year on
maintenance and heating of factory units. What will be
the value of the total expenditure after 10 years,
assuming an interest rate of 10%?

= RM15,000 x ( 1 + i ) n - 1
i
= RM15,000 x 15.9374
= RM 239,061*

* The amount to which RM15,000 invested annually will

accumulate at an interest rate of 10% after 10 years.
 PRESENT VALUE OF 1 /
NILAI KINI RM 1

1
(1+i)n

Or, PV = 1 / A

To find what principal would need to be invested to

achieve a certain amount at a certain rate of interest.

NILAI KINI RM 1 MENUNJUKKAN JUMLAH YANG PATUT

DILABURKAN HARI INI UNTUK MENDAPATKAN RM 1 DI AKHIR
n TAHUN DENGAN KADAR FAEDAH i% SETAHUN.
 PRESENT VALUE OF RM 1
• Is defined as that amount which, if invested at a compound
interest over the period involve, will grow to that sum at
the “i” rate specific.
• Based on the current value of the right to receive RM 1.00
at a known future date.
• That is often known that a certain amount will become due
o will be realized
o Will be spent in a given number of year from now
• What is the worth of this amount today.
 PRESENT VALUE OF RM 1 / Nilai Kini RM1

• Nilai Kini 1
= (1+i)n
• Nilai Kini menunjukkan jumlah yang perlu dilaburkan hari
ini untuk mendapatkan $1 di akhir tahun n tahun dengan
kadar faedah i% setahun.
$x
$1

Start Year 1 Year 2 Year 3 Year 4 Year 5

Sifir ini selalunya digunakan untuk mencari nilai masa kini terhadap
modal atau pendapatan yang akan diterima pada masa hadapan36
Developer expects to sell a house which is being
built, for the sum of RM150,000 in 3 years time.
What is the present value to the developer of this
sum RM150,000 to be received in 3 years time,
with an interest rate of 10% per annum?

* represent the amount which is invested now at a rate of

interest of 10% for 3 years, will accumulate to RM150,000.
FORMULA :-
PV = 1
A

where, A : (1 + i)ⁿ
1
PV = (1 + i)ⁿ

Year 3 1
=
(1 + 0.10)
³
1
= (1.10) ³

1
= 1.331

= 0.75 x RM 150,000.00 =RM 112,697.22

 PRESENT VALUE OF RM 1 / Nilai Kini RM1
Exercisee:
If RM 10,000 is required within the next 5
years. What is the amount that must be
deposited in the bank today,
today with interest rate
of 5% per annum?

Amount required within 5 years RM 10,000

= X 0.783526
PV at 5 years @ 5%
= RM7,835.26
 PRESENT VALUE OF RM 1 / Nilai Kini RM1
Bolehlah disimpulkan PV@Nilai Kini RM1 adalah resiprokal
dari Amount RM1
•Tahun 1

RM7,835.26 x 1.05% = RM8,227.023

•Tahun 2

RM8,227.023 x 1.05% = RM8,638.374

•Tahun 3

RM8,638.374 x 1.05% = RM9,070.293

•Tahun 4

RM9,070.293 x 1.05% = RM9,523.808

PRESENT VALUE OF 1 PER ANNUM@
Year Purchase (YP)
1 - 1
(1 + i ) n

i YP = 1 - 1 /A
i

The principal that must be invested to give a

certain amount at certain years.
 PRESENT VALUE OF RM 1 PER ANNUM
• Used more often
• Provides factors indicating the present worth of an
ordinary annuity of 1
• Most income payment earning obtained – from the use of
the real property
• In order to find the present worth worth (current value
need to convert) By converting (capitilising the estimated
annual earnings into a sum of PV.
• For the measurement of PV of a single payment or sum of
money due at some future time.
 PRESENT VALUE OF 1 PER ANNUM
• JUGA DIKENALI SEBAGAI “YEARS PURCHASE
TABLE METHOD OF VALUATION”
• Nilai Kini RM 1 Setahun (Angka Tahun Belian) menunjukkan
Nilai Masa Kini Ke Atas penerimaan RM 1 di akhir tiap-tiap
tahun selama n tahun dengan Kadar Faedah i% Setahun.
• The principal that must be invested to give a certain amount at
certain years.
 PRESENT VALUE OF 1 PER ANNUM
@ Year Purchase (YP)

1 1 1 1 ….. 1
YP = + + + +
(1 + i)n (1 + i)n (1 + i)n (1 + i)n (1 + i)n

_ 1
= 1
(1 + i)n
i

_ 1
YP = 1
A
i
 ANNUAL SINKING FUND

i
[ ( 1 + i ) n– 1 ]
• Is the annual sum required to be invested at the end to
the year accumulate to one in “n” at “i” compound
interest.
• Is the reciprocal to the amount of 1 p.a.
• The ASF table may be used to calculated the annual
amount to be set aside to meet a known future liability
or expense.
example
Example 1
The client has requested advice on the comparative total cost for
a project with two alternatives which have 55 and 65 years
economic life respectively. The rate of interest is at 8.5% per
annum.

Description Alternative A Alternative B

Administrative RM 60,000/year RM 50,000/year
Replacement RM 1.0 mil @ every 10 RM 250,000 @ every 5
years years
Repair and maintenance RM 100,000 /annum RM 50,000 / annum

Repainting works RM 350, 000 @ every RM 350, 000 @ every

10 years 10 years
 Alte rn a tive A
RM
1) Adminis tra tive {RM 60,000/ye a r}

FORMULA :-
PV of RM1 1- 1/A
@ YP = =
i
where, A : (1 + i )ⁿ
So, = 1
1 -
(1 + i )ⁿ
i

1
= 1 -
(1 + 0.085 ) ⁵⁵
0.085
1
= 1 -
(1.085 ) ⁵⁵
0.085
1
= 1 - 88.8455
0.085

1 - 0.0112554
=
0.085

= 11.6323 x 60,000.00 = 697,938.00

2) Re pla ce me nt {RM 1.0 mil @ e ve ry 1 0 ye a rs }

FORMULA :- PV = 1 / A

where, A : (1 + i )ⁿ

PV = 1
(1 + i )ⁿ
Year 10 - PV = 1
(1 + .085) ¹º
Year 10 = 1 / 2.2609 = 0.4423

Year 20 = 1 / (1.085) ²°
= 1 / 5.1121 = 0.1956

Year 30 = 1 / (1.085)³º
= 1 / 11.5583 = 0.0865

Year 40 = 1 / (1.085)⁴⁰
= 1 / 26.1330 = 0.0383

Year 50 = 1 / (1.085) ⁵⁰
= 1 / 59.0863 = 0.0169
TOTAL = 0.7796
x 1,000,000.00 = 779,600.00
3) Re pa ir a nd ma inte na nce {RM 100,000 /a nnum}

PV of RM1 1- 1/A
@ YP = i

1
= 1 -
(1 + 0.085 ) ⁵⁵
0.085

= 11.6323 x 100,000.00 = 1,163,230.00

4) Re pa inting works RM 350, 000 @ e ve ry 10 ye a rs

FORMULA :- PV = 1 / A
Year 10 = 1 / 2.2609 = 0.4423
Year 20 = 1 / (1.085) ²°
= 1 / 5.1121 = 0.1956

Year 30 = 1 / (1.085)³º
= 1 / 11.5583 = 0.0865

Year 40 = 1 / (1.085)⁴⁰
= 1 / 26.1330 = 0.0383

Year 50 = 1 / (1.085) ⁵⁰
= 1 / 59.0863 = 0.0169

TOTAL = 0.7796
x 350,000.00 = 272,860.00

TOTAL COST OF ALTERNATIVE A 2,913,628.00

 Alte rna tive B
RM
1) Adminis tra tive {RM 50,000 / ye a r}

FORMULA :-
PV of RM1 1- 1/A
@ YP =
i

= 1 - 1
(1.085) ⁶⁰
0.085

1
= 1 -
133.593
0.085

= 1 - 0.007485
0.085

0.9925
0.085

11.6765 x 50,000.00 = 583,825.00

2) Re p la c e me nt RM 250 ,00 0 @ e ve ry 5 ye a rs

FORMULA :- PV = 1/A
Year 5 = 0.6650
10 = 0.4423
15 = 0.2941
20 = 0.1956
25 = 0.1301
30 = 0.0865
35 = 0.0575
40 = 0.0383
45 = 0.0254
50 = 0.0169
55 = 0.0113
60 = 0.0075
65 demolished
TOTAL = 1.9705
x 250,000.00 = 492,612.50

3) Re p a ir a nd ma inte na nc e RM 50 ,00 0 /a nnum

PV of RM1 1- 1/A
=
@ YP = i

= 11.6765 x 50,000.00 = 583,825.00

4) Re p a inting wo rks RM 35 0, 0 0 0 @ e ve ry 1 0 ye a rs

FORMULA :- PV = 1/A
10 = 0.4423
20 = 0.1956
30 = 0.0865
40 = 0.0383
50 = 0.0169
60 = 0.0075
TOTAL = 0.7871 x 350,000.00 = 275,481.50

TOTAL COST OF ALTERNATIVE B 1,935,744.00

CONCLUSION & JUSTIFICATION ON DECISION

TOTAL COST OF ALTERNATIVE A 2,913,628.00

TOTAL COST OF ALTERNATIVE B 1,935,744.00

Comparison Between Alternative A And B;

1. The Alternative B is more economical, because three items, such as

Administrative cost, Replacement, Repair and maintenance cost are more
cheaper compare to Alternative A.

2) For examples, Replacement of materials needs only RM 250,000 in B

within 5 years of use, and is only expected to reach around RM 500,000 in
the year of 10, compared to Alternative A, needs RM 1 m in same period.