Managing multi-site portfolios, taking care of customers, and handling day-to-day operations, not to mention the stress in planning budgets, can overwhelm any facility manager. However, life cycle costing in facilities management can be leveraged to understand the costs associated with the building and its equipment. Unfortunately, facilities managers may confuse life cycle costing in facilities management with total cost of ownership; we will now analyze what are the key differences between the two, and how life cycle costing impacts facilities management.
The Definition of Life Cycle Costing
Life cycle costing closely mirrors total cost of facility ownership, explains the FM Guru. Life cycle costing includes the costs of purchasing, maintaining and getting rid of a building or its assets. Isolating these costs enables a better selection of facility assets or building locations, reducing the risk of going over budget and improving the overall total cost ownership by selecting lower-cost solutions that maintains the minimum quality required. In other words, it is the total cost of ownership for a building, minus how the facility or building is maintained.
What's The Difference Between Life Cycle Costing and Total Cost of Ownership?
As explained by David Lewek of Facility Executive, life cycle costing programs are similar to those designed to reduce the total cost of ownership. They allow facilities managers to monitor, manage and plan long-term building costs. Unlike determining total cost ownership, life cycle costing programs focus on preventative maintenance, repair maintenance and capital renewal costs. However, they do not include the costs of the energy used by equipment, or needed to maintain occupant experiences. As a result, facilities managers can use life cycle costing programs to prioritize maintenance needs and budget accordingly.
When Is Life Cycle Costing in Facilities Management Useful?
Life cycle costing is best applied to capital budgeting decisions involving higher upfront costs with lower, long-term costs. Since preventative maintenance allows for lower long-term costs by extending equipment life expectancy and reducing operating expenses, using a life cycle costing program can help determine if the cost of an asset is acceptable and capable of staying within the budget considering long-term business goals.
How to Enhance a Life Cycle Costing Program
Although life cycle costing programs do not consider the costs to run equipment, life cycle cost includes the costs of repairs, both preventable and unforeseen. Therefore, facilities managers should review the recommended maintenance of each asset, as well as use insights gathered from analytics to determine projected maintenance costs for an optimized system. Facilities managers looking to enhance or implement a life cycling costing program should follow these best practices:
- Develop and use a life cycle costing from the beginning of a project, or preparation of a budget.
- Define the acceptable limits for the facility’s condition and asset performance.
- Identify strengths and weaknesses in the existing facility condition, running a facility condition assessment.
- Collaborate with facilities management team members and executives to review acceptable solutions, potential life cycle costs, and differences in selections.
- Re-evaluate life cycle costs for all assets and facility with each facility condition assessment, says FM Link.
Is an Energy Management System Necessary to Improve Life Cycle Costing in Facilities Management?
Developing a life cycle costing program in facilities management is about understanding the return on investment for facility and asset purchases, repairs and upgrades. By excluding energy consumption from the life cycle costing equation, facilities managers can gain a view of the costs associated with such activities without getting into the details of energy management benefits. However, energy management systems do offer lower maintenance costs in the long-run, so facilities managers must not discount the value of their implementation when conducting life cycle costing, reports the U.S. Department of Energy.
Understand Life Cycle Costing to Reduce Facilities Spend Now
Facilities spending includes capital expenses, the one-time purchases for equipment and the facility itself, and operating expenses, including energy consumption costs, cost of maintenance, and general costs of facilities management. Excluding energy costs from the equation may seem counterintuitive, but it can help facilities managers in determining how to assess and allocate funds for capital expenses. Although energy costs are not included in this process, wise facilities managers understand that energy management leads to better operating efficiency and identification of potential equipment failures as soon as possible, leading to a reduction in maintenance costs.