Life Cycle Cost Analysis: Is it Worth the Effort?

The document advocates for a four-step life cycle cost analysis (LCCA) process—establishing a baseline, defining energy efficiency measures (EEMs), calculating financial metrics, and bundling measures—to avoid the sub-optimal design choices often resulting from simple payback analysis. It demonstrates through a fictional chiller replacement example and a real-world 20,000 square-foot retail store retrofit that LCCA can reveal positive net present value (NPV) and higher internal rates of return (IRR) by accounting for avoided business-as-usual costs and synergistic effects. The authors conclude that while LCCA requires more effort in data collection and modeling, the potential for significant energy cost savings and carbon emission reductions makes it worth the investment.

• Simple payback analysis is an incomplete metric for energy-efficiency investments because it only considers capital costs and annual energy savings, ignoring rebates, maintenance savings, and long-term operating costs.
• The authors propose a four-step LCCA process that adds 'establishing the baseline' and 'bundling measures' to the conventional process of defining measures and calculating financial metrics.
• Establishing a baseline for retrofits involves identifying inevitable 'business-as-usual' maintenance and renewal projects; subtracting these costs from the full cost of efficiency measures allows the investment to be justified by the marginal cost increase.
• Bundling energy efficiency measures allows for synergistic benefits, such as downsizing mechanical systems due to reduced heating and cooling loads, which can make otherwise non-viable measures financially attractive.
• In a fictional example of a 500-ton centrifugal chiller replacement, a simple payback analysis would have rejected the measure (12.0 years), whereas an LCCA showed a positive net present value of $34,501 and an ROI of 11.2%.
• A real-world deep energy-efficiency retrofit of a 20,000 square-feet retail store achieved a 72% reduction in annual utility costs and a 26% IRR; without establishing a baseline and bundling, the IRR would have dropped to 19% and utility savings to 55%.
• The additional effort required for LCCA is primarily in data gathering for the baseline, but the cost of these professional design services is very small—approximately 0.2% of the total cost of ownership.

APA

Buys, A., Bendewald, M., & Tupper, K. (n.d.). Life Cycle Cost Analysis: Is it Worth the Effort? RMI. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2010-24_LCCA.pdf

Chicago

Buys, Aaron, Michael Bendewald, and Kendra Tupper. Life Cycle Cost Analysis: Is it Worth the Effort? RMI, n.d. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2010-24_LCCA.pdf.

Wikipedia

{{cite report |last1=Buys |first1=Aaron |last2=Bendewald |first2=Michael |last3=Tupper |first3=Kendra |title=Life Cycle Cost Analysis: Is it Worth the Effort? |publisher=RMI |url=https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2010-24_LCCA.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{buysndlife, author = {Buys, Aaron and Bendewald, Michael and Tupper, Kendra}, title = {{Life Cycle Cost Analysis: Is it Worth the Effort?}}, institution = {RMI}, url = {https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2010-24_LCCA.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }