Life-cycle costing analyzes the total cost of ownership over a product’s entire life, including purchase price, operating costs, maintenance, and disposal. Learn how life-cycle costing helps make informed purchasing decisions.
Table of Contents
Question
A building manager is comparing the operating cost of the existing boiler to the purchase and operation of a new and more efficient boiler. The building manager discovers that although the upfront cost is significant, purchasing the new boiler would drastically decrease the cost of running and operating the system. This exercise is called
A. life-cycle costing
B. value engineering
C. integrated design
D. life-cycle assessment
Answer
A. life-cycle costing
Explanation
Life-cycle costing is an economic analysis method that considers all costs associated with an asset over its entire life cycle, from acquisition and installation to operation, maintenance, and disposal. In this case, the building manager is comparing the total costs of owning and operatingtwo different boilers over their respective lifetimes.
Life-cycle costing is a method of analyzing and comparing the total costs of a product, system, or building over its entire lifespan. This includes considering the initial purchase price or construction costs, as well as ongoing expenses such as energy use, operating costs, maintenance, repairs, and eventual decommissioning and disposal at the end of the useful life.
The goal of life-cycle costing is to determine the most cost-effective option over the long term, rather than just focusing on upfront costs. In the scenario described, the building manager is using life-cycle costing principles by comparing not just the purchase price of the new efficient boiler, but also factoring in the significant savings in operating costs over time. Even though the new boiler has a high upfront cost, the manager discovered that reduced energy use and operating expenses would make it the more economical choice over the lifespan of the equipment.
In contrast, the other answer options do not accurately describe the analysis being performed:
B. Value engineering is a systematic approach to improve the value of a product by examining its functions and components to reduce costs while still maintaining performance and quality.
C. Integrated design is a collaborative design process that involves all stakeholders from the beginning to optimize building systems and performance.
D. Life-cycle assessment examines the environmental impacts of a product through its life stages from raw material extraction to disposal, but does not necessarily analyze costs.
So in summary, life-cycle costing is the best description for comparing the total costs of the current and new boiler options over their entire lifespans to determine which is most cost-effective in the long run. Considering operating costs and energy efficiency, not just upfront price, is key to making economically and environmentally sustainable equipment decisions.
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