Life Cycle Cost Analysis for Engineering Projects

Life cycle cost analysis methods including net present value, payback period and annualized costs.

lifecyclecostanalysis

Overview

Life Cycle Cost (LCC) analysis evaluates the total cost of ownership over an asset's life span, including initial investment, operation, maintenance, and disposal.

$LCC = C_i + \sum_{t=1}^{N} \frac{C_{O\&M,t}}{(1+r)^t} + \frac{C_{disposal}}{(1+r)^N}$

where:

$C_i$ = initial cost
$C_{O\&M,t}$ = operation & maintenance cost in year $t$
$r$ = discount rate
$N$ = life span (years)

Net Present Value (NPV)

$NPV = \sum_{t=0}^{N} \frac{CF_t}{(1+r)^t}$

Comparison of HVAC System Costs

4 rows

Life cycle cost comparison (example values)
system
Conventional boiler + chiller
High-eff. condensing boiler
Ground-source heat pump
Air-source heat pump

Source: engineeringtoolbox.com

Key Concepts

Method	Use Case
Simple payback	Quick screening — ignores time value of money
NPV	Most rigorous — accounts for discount rate
IRR	Rate of return — useful for comparing alternatives
Annualized cost	Equal annual payments over project life

Source: engineeringtoolbox.com