Life Cycle Costing & Total Cost of Ownership Flashcards
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The federal government's primary source for discount rates to use in federal LCCA is:
Answer: OMB Circular A-94, which publishes annual real and nominal discount rates
OMB Circular A-94 provides the official real and nominal discount rates that federal agencies must use when conducting benefit-cost or life-cycle cost analyses.
Energy cost escalation in LCCA is handled differently from general inflation because:
Answer: Energy prices historically escalate at rates different from the general Consumer Price Index
Energy prices follow their own commodity-driven escalation rates that often diverge from general CPI, so LCCA uses energy-specific escalation factors (often from DOE/NIST) for accuracy.
In the context of Life Cycle Costing, 'externalities' refer to:
Answer: Costs incurred by parties outside the project that are not reflected in market prices
Externalities are social or environmental costs (e.g., pollution, noise) imposed on third parties that the owner does not pay directly but which represent real economic impacts sometimes included in comprehensive LCC.
A Net Present Value (NPV) comparison in LCCA that yields a negative NPV for the incremental investment means:
Answer: The base alternative is the more economical choice
A negative NPV on the incremental investment means the additional savings generated by the more expensive alternative do not justify its extra cost, making the base alternative more economical.
Which LCC cost element encompasses costs associated with personnel training, documentation, and technical support for an installed system?
Answer: Operations and support costs
Training, documentation, and technical support are components of ongoing operations and support costs that persist throughout the system's operational life.
When comparing mutually exclusive alternatives with unequal service lives using LCCA, the recommended approach is to:
Answer: Establish a common study period using the Least Common Multiple of the service lives or a fixed planning horizon with salvage values
Using the Least Common Multiple of service lives (or a fixed planning horizon with terminal salvage values) ensures each alternative is evaluated over the same total period, making costs directly comparable.
The AACE International Recommended Practice that provides guidance on parametric estimating as it relates to life-cycle cost models is BEST described as addressing:
Answer: Statistical relationships between cost drivers and system parameters to estimate LCC elements
Parametric estimating uses historical cost-to-parameter relationships (e.g., cost per unit area, cost per horsepower) to develop LCC estimates quickly when detailed design data are unavailable.