FM Issue: Beyond Initial Price - Facility Executive Magazine - Creating Intelligent Buildings

Creating a relevant formula for life cycle costing is key to reaping benefits from this purchasing strategy.
Creating a relevant formula for life cycle costing is key to reaping benefits from this purchasing strategy.

FM Issue: Beyond Initial Price

FM Issue: Beyond Initial Price - Facility Executive Magazine - Creating Intelligent Buildings

By Sheila M. Sheridan, CFM, IFMA Fellow, LEED® AP
Published in the October 2010 issue of
Today’s Facility Manager

life cycle costing environment professional development

Over the years, building professionals have used two tools related to the life cycle of the products they specify for purchase—a life cycle cost assessment (LCA, or LCCA) and life cycle costing (LCC). While both tools consider durability and lifespan, there is often confusion between the two.

An LCA quantifies the cost of ownership and analyzes the impact and burden of the environmental components, so it has the element of environmental accounting. Meanwhile, LCC collects all costs of ownership from acquisition through disposal, and it is the sum of the total cost of a physical asset throughout its life cycle; this tool is an economic accounting procedure.

Sustainability is a topic frequently discussed within the facility management (FM) profession, and while it has an economic focus, LCC also provides an opportunity for facility managers (fms) to support their organizations’ environmental goals. So while LCC is often used in capital expenditure decisions, fms should also seize the opportunity to integrate the tool into purchasing processes within their operations and maintenance (O&M) budgets. For instance, LCC can incorporate, within the O&M analysis, the use of energy when purchasing lamps or water in evaluating cleaning equipment.

Increasingly, suppliers to the built environment are now addressing and demonstrating how their products can be viewed using LCC. Products that can be evaluated through this lens include (but are not limited to) carpet, ceiling tiles, paints and coatings, lighting, furniture, windows, roofing, and mechanical systems. These items are typically viewed within FM departments from the perspective of initial cost only. The LCC tool takes the procurement process beyond the initial cost analysis.

Roadmap For Implementation

There are three basic pieces to the LCC model; these are acquisition, O&M, and disposal. LCC allows fms to incorporate costs and benefits into their purchasing programs in a logical manner. Within the framework of this tool, there is also the opportunity to make choices that support sustainability goals. LCC should also reduce the time involved in frequently replacing a product, because the items will not be purchased based on initial cost only. There maybe higher initial cost for a product, but the LCC process usually shows that these costs are offset by lower O&M and disposal costs.

Fms should first determine if their organization has a sustainability or corporate responsibility statement in place. If one does exist, it can be used to explain the LCC process to those who will be involved in evaluating products and services in this way. The first stop should be with the internal purchasing department to ask for assistance and cooperation in going forward with this endeavor. An fm then needs to educate senior management about the LCC model. A key to success of LCC is to have support of management and staff, because initial cost will no longer be the only consideration in purchasing decisions.calculating life cycle costs environment procurement

It can be beneficial to have an example of LCC on hand to share with the stakeholders in this process. This will help to illustrate the components involved (see example checklist at right) and the benefits that can be gained.

Fms should then develop a list of products their department will be purchasing under the O&M budget that could fit within the LCC tool. In starting out with LCC, fms should test the process with just one product being purchased within that budget. One way to gather information about the products currently being purchased is to request specification cut sheets from suppliers.

Looking ahead, once an FM department has become proficient in the LCC process, there is opportunity to develop a list of potential products and systems within the capital budget.

Roofing, window, and mechanical systems are ideal candidates for LCC. The key to success is to adapt this tool to specific needs and experience.

Fms can then develop a Request for Proposal (RFP) using the LCC model. The RFP should ask for information along separate lines of a product’s quantitative and qualitative components. Quantitative items would be initial cost, O&M, and disposal. Any costs relevant to the design or installation should also be part of the cost of the product. If there is a warranty, then this should also be considered as part of the analysis.

The second critical component is the qualitative, and this can include occupant acceptance of the product, ease of use, and aesthetics. The items will need to be determined by those in the FM department, since that personnel will have a good idea of what qualitative aspects are important to the specific facility. Flooring and ceiling tiles are examples of two products that would include the qualitative component.

The RFP should request that the vendor or supplier complete a form with the necessary quantitative information and provide the product cut sheet and material safety data sheet (MSDS). It is also important that the RFP establish the common units for measurement.

Don’t Dismiss Disposal

Part of the LCC process is to look at the future disposal of the product being purchased. As many fms already know, the cost for disposing certain types of items has become increasingly expensive. Disposal can also have a negative impact on the environment—the mercury contained in fluorescent lamps, for instance. Many suppliers and vendors now have programs to handle the disposal of products that require special handling, whether for their own products or those made by other companies.

Many vendors are aware of the need to inform purchasers about their products as they relate to disposal and LCC overall. As a result, fms are seeing an increasing amount of product literature addressing this issue. However, if an fm finds there is no information concerning a product’s disposal, they can request that a letter be written on the company’s letterhead concerning the recommended disposal process.

There is an opportunity for fms to transform the market by asking about the disposal practices for the products they are considering purchasing. They just need to ask the right questions, which will enable them to determine the best source for their facility’s needs.

An All Around Approach

Fms can make a difference in their O&M budgets and demands by adopting the LCC tool to make informed choices about the products they purchase. Incorporating LCC calculations into an increasing number of product category purchases will serve to maximize the dollars spent. There is a need to go beyond first cost analysis which has tended to be the practice with purchases undertaken outside the scope of a major renovation project.

And as they become more proficient in using the LCC tool, the next step could be for fms to apply an LCA to their purchasing decisions, which will add an even tighter focus on the environmental attributes of a product. But first, it is important that FM departments begin applying the LCC tool and then begin sharing their success stories with others.

Sheridan, CFM, IFMA Fellow, LEED® AP O+M, is a LEED faculty member, past chair of the International Facility Management Association (IFMA), and a U.S. Green Building Council technical committee member. She is retired from Harvard University’s John F. Kennedy School of Government where she worked as director of facilities and services. She can be reached at [email protected].

Do you use life cycle costing in purchasing decisions? Share your experiences by sending an e-mail to [email protected]

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