Life Cycle Cost Analysis (LCCA) Introduction Life Cycle Cost Analysis (LCCA) is defined as a method or financial tool for evaluate the total cost of owning the facility, which includes the time period and discount rate using discount cash flows. For example: costs of maintenance, use, reconstruction, rehabilitation, restoration and resurfacing of the road surface. The net present value (NPV) and internal rate of return (IRR) are considered all possible cash flows and generate financial parameters of LCCA. Life cycle cost analysis is used to evaluate energy efficiency measures (EEM) for building design and only considers capital and energy costs. A simple payback analysis is defined as “the process of determining the capital cost and energy cost savings of an EEM and dividing one by the other to determine the number of years required for the EEM investment to pay off ” (1). Sometimes a simple payback method is used instead of life cycle cost analysis. By understanding the LCCA process, the concept of a simple payback analysis which is inferior to life cycle cost analysis will be clearly understood. For a number of energy efficiency measures, energy savings and cash flows are determined by the LCCA. While this process shows a more complete analysis than simple reimbursement, there is more opportunity to develop the accuracy of this analysis. This report discusses a four-step process for LCCA that aims to realize all cost saving opportunities: 1- Establish the baseline.2- Define Energy Efficiency Measures (EEM).3- Calculate financial parameters. 4- Bundled measures. The following points describe the four-step process for life cycle cost analysis1- Establish the baseline: Establish the baseline is to consider…half of the document…the native is calculated. When the NPV of an alternative is at least 10% lower than the NPV of another competing alternative, the alternative is preferred. When the alternatives are similar or equivalent, the difference between the NPV of the alternatives will be less than 10%. The sensitivity analysis should examine the effect of the variability of the main input parameters for the analysis of the overall results. The most significant parameters that should be tested for sensitivity in the analysis are the discount rate, timing of future rehabilitation activities, traffic growth rate, unit costs of major construction components, and the analysis period.7 - Reevaluate design strategies if necessary. Figure 2 illustrates the structured LCCA approach. Figure 2: LCCA Process Flowchart References: 1-2- http://accountingexplained.com/managerial/capital-budgeting/npv