Mastering the Financial Future: Unveiling the Power of Life Cycle Costing for Infrastructure Projects - Civil Bites

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Mastering the Financial Future: Unveiling the Power of Life Cycle Costing for Infrastructure Projects

August 12, 2023 Civil Bites 0 Comments

Life cycle costing is a way to figure out the total cost of an infrastructure project over its entire lifetime.

Instead of just looking at the upfront construction costs, it considers all the expenses that will come up from the beginning of the project until the end of its useful life.

This helps government clients decide which projects to invest in, as they can see the complete financial picture.

Here’s how you can calculate life cycle costing:

  1. Identify Costs: First, list all the costs involved throughout the project’s life. This includes not only the obvious things like construction materials and labour but also operating costs (like maintenance, repairs, energy, and labour for running and maintaining the project) and any disposal or removal costs at the end of its life.
  2. Time Frame: Determine the project’s expected life span. For example, how long do you expect it to be in good use if it’s a road? This is the time frame you’ll consider for your calculations.
  3. Discount Rate: This is trickier. It’s like thinking about how much money you could earn if you invested elsewhere. For government projects, you’d often use a discount rate representing the government’s borrowing cost or the rate of return they could expect on other investments.
  4. Calculate Costs Over Time: Now, you take each cost and adjust it for the time value of money. This means you convert future costs into today’s money to make everything comparable. This is where the discount rate comes in. Future costs are worth less today, so you need to adjust them to account for that.
  5. Sum Up the Costs: Add up all these adjusted costs. This gives you the total life cycle cost of the project.
  6. Compare Alternatives: Sometimes, there are different ways to do a project. You can use life cycle costing to compare these alternatives and see which makes the most financial sense over the long run.
  7. Decision Making: With this information, government clients can better decide whether a project is worth the investment. For example, they can see if a cheaper initial construction cost might become more expensive in the long run due to higher maintenance costs.

So, life cycle costing is like looking at the whole financial story of a project from start to finish. It helps government clients see the upfront price tag and all the costs involved over time, helping them make more intelligent investment choices.

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