ASSET MANAGEMENT WITH LIFE CYCLE COSTS

Andrea Pelzeter

ERES from European Real Estate Society (ERES)

Abstract: The concept of Life Cycle Costs (LCC) is an instrument to detect a possible Trade-Off between costs for investment and costs for operation and maintenance. Even though the effectiveness of Life Cycle Costing is highest on the very beginning if the life cycle of real estate, it is also profitable to implement LCC in the phase of use. In that phase possible alternatives in the management of an asset have to be compared integrating all future costs caused by that alternative in relation to the status quo. This paper will show how LCC contribute to Asset Management. In Asset Management LCC can be used for strategic and operational decisions as well as for controlling. * strategic decisions: LCC are implemented for the selection of objects, where an investment in maintenance, modernisation or refurbishment will improve the long-term Cash-Flow. * operational decisions: The planning of these measurements may be optimised with the help of LCC. * controlling: LCC serve as a benchmark or as a limiting value. / Because the calculation of LCC is not (yet) regulated by a national or international norm different methods are in use. The influence of different calculation methods on LCC-supported decisions will be demonstrated by examples, calculated in a model developed by the author in her doctoral thesis. In conclusion a recommendation for the calculation of LCC is given - in accordance with the draft of GEFMA 220, a German guide on Life Cycle Costing in Facility Management, which was chaired by the auhor. The main objective of this paper is to point out which aspects have to be reflected before implementing LCC in asset management.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2006-01-01
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