There are various costs associated with building components or systems. The following are some of the most common categories :
- Initial Costs
• Initial construction cost – material and installation costs
- Future Costs
• Fuel Costs (Energy and Water Costs)
• Operation, Maintenance, and Repair Costs
• Replacement Costs
• Residual Cost—Resale value or disposal Costs at end of lifecycle period
• Finance Charges—loan interest payments
• Non-monetary Benefits or Costs
The discount rate reflects the time value of money . The discount rate converts costs and benefits that occur at different times during the life cycle of a project to a base time. The interest rate used in the discount rate reflects the cost of borrowing, or an investor’s minimum rate of return. The real discount rate refers to a rate that excludes the rate of inflation while the nominal discount rate includes the rate of inflation.
LCA can be conducted using constant dollar or current dollars. Constant dollar analysis excludes the rate of inflation while current dollar analysis includes the rate of general inflation in all dollar values, discount rates, and price escalation rates. Many LCA use constant dollar analysis to simplify the analysis. Both methods produce identical, present value life cycle costs.
The cost period is the period of time for which ownership and operating expenses are evaluated. This can also be seen as a system or building component’s service period or life expectancy.