Savings and investment costs
• The basic criterion for determining whether a design alternative that increases capital investment and lowers future operating costs is cost-effective is that the savings generated by the investment must be greater than the additional investment cost. The number of years over which the savings are accumulated and the weighting of future costs (or cost savings) relative to present costs are major considerations in life-cycle cost (LCC) analysis.
• The LCC concept requires that all costs and savings related to a design decision be evaluated over a common study period and be adjusted for the time value of money before they can be meaningfully compared. Choosing building systems on the basis of first cost alone can increase the long-run owning and operating costs of a building. For example, the purchase of a low-efficiency heating system, while initially less expensive than a more efficient system, will incur higher energy costs when in use. The difference may be significant since for many building systems only a small part of the life-cycle cost is attributable to the initial purchase price. The greater part is usually attributable to ongoing operating, maintenance, repair, and energy costs.
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The energy crisis of the 1970s, higher energy prices, and environmental concerns focused our attention on the critical need to include energy conservation as a major performance objective in the design or rehabilitation of buildings. In the last three decades, the Federal Government, as owner and operator of over a half-million buildings and the nation’s largest user of energy, has played a leadership role in improving the energy efficiency of our nation’s building stock. Through energy conservation alone, the Government has been able to save nearly a billion dollars a year between 1985 and 1994, at a savings-to-investment ratio of 5:1 and an internal rate of return of 25 %. More recently, water conservation in buildings and the use of renewable energy and green building materials have also been included in the Government’s goal of ensuring efficient resource allocation.