Building Research & Information

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The development of life-cycle costing for buildings

Bee Hua Goh & Yuting Sun

To cite this article: Bee Hua Goh & Yuting Sun (2015): The development of life-cycle costing for
buildings, Building Research & Information, DOI: 10.1080/09613218.2014.993566

To link to this article: http://dx.doi.org/10.1080/09613218.2014.993566

Published online: 08 Jan 2015.

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 B UILDING R ESEARCH & I NFORMATION 2015
http://dx.doi.org/10.1080/09613218.2014.993566

INFORMATION PAPER

The development of life-cycle costing

for buildings

Bee Hua Goh and Yuting Sun

Department of Building, School of Design and Environment, National University of Singapore,4 Architecture
Drive, Singapore 117566, Singapore
Emails: bdggohbh@nus.edu.sg and bdgsunyu@nus.edu.sg
Downloaded by [University of Exeter] at 23:03 20 October 2015

The history of the application of life-cycle costing (LCC) began in the UK in the late 1950s and, until now, the state of its
development as a concept is not clear. A literature review is presented that shows the changing approaches to LCC by
drawing on four major academic journals and 45 peer-reviewed papers. The review verifies that there is a revival of
interest in using LCC in tandem with other life-cycle methodologies for research on sustainable building. It also
presents a set of methods that are applicable to model and estimate the life-cycle costs of ‘conventional’ and ‘green’
buildings with the objective of distinguishing them. Through the information gathered, it provides a centralized source
of reference for the assumptions used in LCC calculations concerning some key input parameters. The finding shows an
increasing trend of publications on the evaluation of economic options for green building designs and performance.
The directions are clear that the concepts and methods have to evolve to a state where they will help to integrate and
optimize economic, social and environmental considerations to deliver more sustainable built environments in the future.

Keywords: capital cost, green building, life-cycle costing, running cost, sustainable buildings, value creation, whole-life
costs

Introduction It is well understood that environmental responsibility

The life-cycle cost of an asset is defined by Addis and
Talbot (2001, p. 1) as:
the present value of the total cost of that asset
over its operational life. This includes initial
capital cost, finance costs, operational costs,
maintenance costs and the eventual disposal
costs of the asset at the end of its life. All future
costs and benefits are reduced to present-day
values by the use of discounting techniques.
Among the most important drivers of change for con-
struction, the use of life-cycle costing (LCC) in the
assessment of project proposals had been identified as
one of them (Winch & Courtney, 2001). Incidentally,
Kirkham (2005) had been witnessing a rapid increase
in the application of LCC within the construction
industry. He viewed this change as the industry
having largely acknowledged the benefits that
decision-making based on life-cycle costs can bring to
the design and operation of building assets. He thinks
it could be indicative of the wider desire of the industry
to aim for sustainable design.
# 2015 Taylor & Francis
requires taking a long-term view – understanding that
the initial design decisions have profound impacts over
a building’s life. In the past decade, there has been
increasing interest in the life cycle of buildings shown
by the relevant players and many of the characteristics
of green building are set within this context. Green
designs typically have significant operating benefits –
low energy and water operation costs, lower mainten-
ance costs because of more robust design, etc. As such,
LCC is widely acknowledged as one of several methods
that can be used to account and provide for a more
comprehensive view of costs. As a concept, LCC
involves the systematic consideration of all relevant
costs and revenues associated with the acquisition
and ownership of an asset. In the context of buildings,
this consists of initial capital cost, occupation costs,
operating costs and the costs incurred or benefited
from its disposal. The application of the LCC method
necessitates all future costs to be estimated, the use of
additional techniques are often involved, e.g. Monte
Carlo simulation and sensitivity analysis. For instance,
the former is useful for determining the level of uncer-
tainty involved when predicting an unknown variable
 Goh and Sun
by ascertaining its probability distribution through
random sampling.
Aims of this review
First, the review aims to present the state of LCC by
chronologically describing the development of LCC,
the concepts, approaches and methodologies that have
been evolving, its use and applications to research, and
limitations that are discouraging a wider use. Second,
it aims to verify the hypothesis that there is a growing
trend of LCC being applied to research on green build-
ings. There appears to be an increasing focus on creating
solutions for choosing between options relating to long-
term economic and environmental performance and the
costs for buildings that strive for sustainable develop-
ment. Third, it aims to distinguish between convention-
al and green buildings for the types of concepts,
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approaches and methodologies that are applicable
from the past to present. Fourth, concerning the use
and applications of LCC, there have been limitations
caused by the lack of consistency in the choice of input
parameters. The review aims to gather information by
type of buildings about assumptions made on the life-
span of buildings, proportion of initial capital cost to
operating cost and discount rate to serve as a centralized
source of reference. The strategy is that if there indeed
was greater interest shown in LCC due to green build-
ings, then making available more standardized and con-
sistent information about a few key input parameters of
LCC models can encourage a wider use.
Research questions
The following research questions have guided the
review:
† Is there increasing interest shown among
researchers in using LCC methods to evaluate
options of design and performance of green
buildings?
† Is there a difference between the LCC methods
applied to model and estimate the costs of con-
ventional and green buildings, and how?
† In order to standardize the information, can
the analysis of the numerical assumptions
made on a few key input parameters of LCC
models produce consistent patterns and
trends for different categories of buildings?
LCC historical development
In the UK, the term ‘costs-in-use’ as defined by Stone
(1983) was first applied to building in the late 1950s,
according to Bird (1986). This indicated a shift in
emphasis away from the then current concern with
capital costs towards the consideration of the conse-
quences, in terms of running cost, of particular
capital expenditures. However, despite substantial
2
effort exerted in promoting the concept of costs-in-
use and explaining the terminology, the application
to buildings had been patchy as there was a general
scepticism about adopting an approach that relies too
much on a whole range of assumptions. In contrast,
economic evaluation methods that account for benefits
(savings) and costs of projects over their expected life
cycle have been used extensively in the United States
for government decisions on large projects such as
water resource investments. However, LCC was first
developed in the mid-1960s to assist the US Depart-
ment of Defence in the procurement of military equip-
ment (Epstein, 1996). It was only since the 1973 energy
crisis that a conscious effort towards considering
future energy costs when planning and designing build-
ings was made and a strong interest in LCC created in
the building industry, according to Marshall (1987).
From the mid-1980s, most US government agencies
were required to use formal life-cycle evaluation
methods and many private owners choose to use
these methods in making building investments in
order to assess and compare the relative benefits of
alternative energy design options in buildings. It was
around the same time in the mid-1980s that the need
for life-cycle cost-performance planning also arose in
Australia. As noted by Bromilow and Pawsey (1987),
work on life-cycle cost-performance theories com-
menced in the Commonwealth Scientific and Industrial
Research Organization (CSIRO) Division of Building
Research, the National Committee on Rationalized
Building (NCRB), the NCRB Facilities Management
Sub-committee, and the Australian Vice-Chancellors’
Working Group on Building Management. In France,
the LCC concept was introduced in the 1970s with
the first studies of building maintenance costs (Perret
& Jouvent, 1995). In the UK, the Building Cost Infor-
mation Service (BCIS) owned by the Royal Institution
of Chartered Surveyors (RICS) had produced a practi-
cal guide on the application of LCC (BCIS, 2008)
which was adopted by the International Organization
for Standardization (ISO). The British Standard ISO
15686 – 5 came into effect in the UK on 30 June 2008.
On developments of the terminology of LCC, ‘life cycle
costs’ is an older term for ‘whole-life costs’. The term
‘costs-in-use’ is now obsolete, according to Ferry,
Brandon, & Ferry (1999). The term ‘life cycle
costing’, or the more current ‘whole-life costing’, is
used to describe a form of modelling technique that
incorporates the analysis and estimation of both
capital and running costs.
LCC concepts, approaches and methods
Traditional LCC
In the 1960s when the LCC approach was formally
established and applied, there had been continuing
calls to use a discounted present value approach for

making economic evaluations of all relevant costs
associated with a project investment over its entire
life (Grant & Ireson, 1960), even until the 1980s (Fla-
nagan & Norman, 1984). Considering that, there was
little surprise to find that the bulk of the literature on
LCC had been centred on the discounted present
value method, seemingly defining it as traditional.
During that phase, the literature comprised works on
assessing total life costs of construction and buildings,
involving all capital and running costs, in general (Bird,
1986; Bishop, 1984; Johnson, Sherif & Becker, 1987;
Marshall, 1987), as well as specifically on university
buildings (Bromilow & Pawsey, 1987). A general
understanding of the essence of the method was that
it enables, by calculating the discounted present value
of alternative designs of buildings, a comparison of
values which transcends problems in comparing pro-
jects of differing lives or differing balances between
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the initial cost of facility procurement and the continu-
ing costs of supporting the facility for its effective oper-
ation. The approach suggested by Bishop (1984) would
be one that might help to focus the attention of clients
and their design team on the performance of buildings
as operational entities with the long-term interests of
the building owners and users to overcome existing
weaknesses in the procurement process that had pro-
duced buildings of uncertain performance and
running costs.
Improved traditional LCC
However, as a possible improvement to the traditional
approach, Flanagan, Kendell, Norman, & Robinson
(1987) had proposed the incorporation of a risk man-
agement system into life-cycle cost analysis to
account for both the risk and uncertainty that are
associated with the need for the technique to predict
the future. They had argued that LCC, by definition,
deals with the future, and the future is unknown,
which therefore requires the use of assumptions that
underlie the cost estimating exercise. They had found
that by applying sensitivity and probability analysis
to LCC, the generated results would indicate in quan-
titative terms the impact of the various assumptions
the better to guide decisions and follow-up work
during the building’s life cycle to achieve efficiency.
In the same vein, Boussabaine and Kirkham (2004)
had stressed the importance of performing risk analysis
in construction investments when applying whole
LCC. The key intent, they had stated, was to ensure
there is improved accuracy in the assessments of effec-
tiveness of projects over the long-term. The essence of
undertaking whole-life appraisals for construction was
discussed by Flanagan, Jewell, and Norman (2005).
They had explained that the approach entails a
review of all costs that encompass the capital costs of
a project, as well as the running and maintenance
costs, in order to satisfy the requirements of those
clients who are seeking maximum value for money.
Development of LCC
The discounted present value technique was also
applied to investigate the running costs of university
buildings, but Al-Hajj and Horner (1998) had studied
only the cost significant items to create a model that
was used to predict total operating and maintenance
costs. They had justified that the developed model
only needed to contain about one-sixth of all items
for operating and maintenance costs in a typical build-
ing which translated into considerable simplification of
the process of data collection.
Non-traditional LCC
Since then, the traditional approach had evolved with
some studies advancing into complex mathematical
formulation to derive methods to estimate life-cycle
cost parameters. Kirkham, Boussabaine, and Awwad
(2002) had studied the facilities management costs of
over 450 UK hospital buildings to obtain the par-
ameters of the theoretical probability density functions
to apply them to an analysis of the life-cycle cost of a
case study’s data. Stochastic modelling was adopted
and through a three-stage validation process the accu-
racy of a hypothesized log-logistic distribution was
confirmed. Their study had also established a frame-
work to show how facilities’ management costs of a
particular type of buildings could be modelled as sto-
chastic assumptions in the estimation of whole life-
cycle costs.
In a similar attempt to find new solutions to the
problem of representing uncertainty in whole-life cost
modelling, Kishk (2004) developed an approach that
combines statistically significant data (like historical
cost records) and subjective data (e.g. expert assess-
ments). This was done through a mathematical frame-
work that integrates all random and non-random data
by transforming them into a common representation,
instead of representing them by either probability
density functions or fuzzy numbers. The idea was
based on the reality where both forms of data on uncer-
tainty, random and non-random, exist in a typical
whole-life cost exercise. The proposed procedure had
clearly departed from conventional methods by
demonstrating through the developed computational
algorithm the integration of probability density func-
tions and fuzzy numbers in the model’s calculation.
In a more recent attempt, Zayed and Moselhi (2013)
created an LCC model using fuzzy set theory to
model imprecise, vague or incomplete data that are
associated with the risk and uncertainty of predicting
the future, and the subjectivity of experts in their
assessment of input parameters, with the aim of
extending the power of decision-making.
Green building LCC
Driven by a greater interest in green buildings from the
start of the year 2000, an increasing amount of
3
 Goh and Sun
research was devoted to the application of LCC
approaches as tools. These tools can provide support-
ing evidence on the significant operating benefits
derived from green designs. Typically, these buildings
have low occupancy costs as a result of less energy
and water usage, and lower maintenance costs
because of more robust designs applying green
materials, systems and strategies.
At the project level, Aye, Bamford, Charters, and
Robinson (2000) had performed an economic feasi-
bility study on a range of property and construction
options for making the optimum environmentally sus-
tainable development choice. Their work focused on
an office building and is used to guide a business in
its decision. The life-cycle costs and benefits were
taken into account and evaluated in monetary terms
for each of the options by using the traditional dis-
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counted present value method to generate the respect-
ive net present values for comparison to obtain the
optimum choice. Similarly, in the area of property
and construction, Ellingham and Fawcett (2006) had
described the options-based approach to LCC as one
that facilitates decision-making under uncertainty. It
provides decision-makers with a diversity of possible
futures or ‘life cycle options’ (e.g. the option to
develop, option to expand, option to switch use and
option to refurbish) and evaluates them using a combi-
nation of mathematical techniques (e.g. discounted
cash flow and Monte Carlo simulation) to produce
more cost-effective and sustainable decisions. The
non-traditional approach overall aims to minimize
the risk of under- or over-investment. Akin to life
cycle assessment (LCA) that uses natural units like
energy and CO2-equivalents for environmental per-
formance studies of materials, components and build-
ings through time, Cole and Sterner (2000) had
envisaged more LCC applications to profile the per-
formance of green building by assessing the costs and
benefits in economic terms. Cole and Sterner argued
there would be definite gains from the strategic
choices that result from considerations framed in a
life-cycle context. With regard to users’ interaction
with a facility, Mithraratne, Vale, and Vale (2007)
focused their attention on showing what happens
once the building is occupied. They had argued that
the varying choices of designers, developers and build-
ing users could produce different impacts on sustain-
ability over the lifespan of the building. The capture
of those is critical for determining the operating
costs, energy use, as well as global warming potential,
in a more holistic manner. Another study applied
whole-life costing to evaluate different environmen-
tally friendly technological options that relate to con-
struction and facilities management. It computed the
cost and impact on carbon performance of retrofit
work to existing buildings with the ‘do nothing’
option (Pellegrini-Masini, Bowles, Peacock, Ahadzi,
& Banfill, 2010). In essence, the study had
4
demonstrated that LCC was an intrinsic part of the
decision to adopt or reject an energy-efficiency strat-
egy. They further described it as a concept that gener-
ally involves taking a whole-life view of the costs, as
well as the benefits from any investment.
However, there had been also studies that rec-
ommended a combined use of LCC and LCA to
derive new tools that could deliver true long-term
value for the client, as well as bring about greater sus-
tainable development, through a holistic assessment of
the cost and value of green building. Bartlett and
Howard (2000) had justified that when there is
correct consideration of whole-life costs together
with the environmental impact of buildings, the
outcome would be sustainable and beneficial to both
business and the environment in the long run because
the savings in energy consumption can pay back any
capital investment and start to generate long-term
returns. In the same vein, Gluch and Baumann
(2004) had carried on to suggest new tools that could
integrate LCC and LCA to emphasize the need for
economic evaluations to have environmental dimen-
sions. They had identified three areas of research for
developing solutions that integrate environmental
and micro-economic dimensions:
. extend the system boundaries by complementing
LCC-oriented tools with tools that focus on phys-
ical measures (e.g. LCC and LCA)
. improve the understanding of environmentally
related decision-making
. create new tools that involve people in the decision
process and for the decision options
Lately, the use of LCC was combined with sensitivity
analysis in order to investigate the implication of criti-
cal input variables on LCC for making risk-informed
investment decisions concerning the adoption of
certain green building components. Going further,
Langston (2013) recommended a multi-criteria
decision-support visualization tool to assess sustain-
ability for built infrastructures with respect to the x-,
y- and z-coordinates for economic, social and risk con-
siderations, respectively, that are plotted in three-
dimensional space.
In the study of the optimum energy and cost perform-
ance of transparent insulation (TI) systems as low
carbon external cladding of office buildings (Wong,
Perera, & Eames, 2010), the LCC was modelled
using cost influence diagrams. Sensitivity analysis was
used to examine changes in the LCC variables, e.g. dis-
count rate, TI system cost, fuel price and lifespan of the
buildings. The results were compared with the conven-
tional opaque wall insulation and windows to evaluate

the economic feasibility of such low carbon technol-
ogies. At the micro-scale of understanding how build-
ing materials and their performance would affect
LCC, Caplehorn (2012) articulated the practical
issues involved in the selection of materials based on
either performance or rate of deterioration, including
the allowances that are needed at the end of their
life. The most recent work had been a review of life-
cycle methods by Sesana and Salvalai (2013) that was
directed at establishing the principles, limitations and
implications of the approaches to design a nearly
zero energy building (nZEB). Their review had
involved specific methods, i.e. life-cycle assessment,
life-cycle energy analysis, life-cycle costs and life-
cycle zero energy building. From the analysis results,
the study recommended that all the methods still
required further research to embrace the zero energy
building design in order to overcome their limitations.
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Also recommended was the need to establish a credible
database to allow more applicability and diffusion of
the various methodologies.
Use and applications of LCC
Conventional applications
In a long-term cost study of Australian university
buildings, the concepts of LCC were applied to create
mathematical models. These models could simulate
the life-cycle pattern of a building based on identifying
and dealing in specific terms with as many individual
activities as is practicable (e.g. maintaining and operat-
ing the facilities, repairing and replacing components)
that should occur in order to keep the building at a
given level of serviceability and of the costs of under-
taking those activities (Bromilow & Pawsey, 1987).
In the same period, government agencies in the
United States also used building economics methods
like LCC in conducting the analysis of building
design and operation. In the course of use, they had
developed internal economic guidelines for evaluating
energy conservation investments, investments in
general, lease/buy/renovate decisions, as well as
decisions concerning the development of hospitals. A
few applications of LCC to real-world problems under-
taken by the National Bureau of Standards were men-
tioned (Marshall, 1987), which included a project to
deal with the impact of acid rain on buildings and, as
an outcome, produced a database of life-cycle costs
of maintaining building materials and components
damaged by acid deposition. Another project that
dealt with the development of a residential energy stan-
dard by the American Society of Heating, Refrigerating
and Air Conditioning Engineers (ASHRAE) for use in
the heating, ventilating and air-conditioning industry
had applied LCC analysis to specify the most efficient
levels of building performance, based on determinants,
e.g. climate, projected fuel prices and building per-
formance characteristics.
Development of LCC
In Japan, Minami (2004) appraised the repair and
improvement work of facilities, specifically for post
office buildings, by adopting the whole-life costing
concept. The primary interest was on the relationship
between repair/improvement work and the age of the
buildings. In addition, the reduction of overall costs
was analysed by lengthening the life of the buildings
to examine its effect as increased longevity could effec-
tively reduce the overall initial investment and operat-
ing costs. The main results showed the average annual
repair and improvement work cost based on the data
collected from a total of 1255 general sorting post
offices throughout Japan in the year 2000.
Green building applications
When sustainable building became prominent at the
start of the 21st century, there had been increasing
attention directed towards the use of LCC. The Build-
ing Research Establishment (BRE) in the UK built a
decision support tool called ENVEST to facilitate the
assessment of cost and environmental impact simul-
taneously for the early stages of the design process.
The intention was to implement the ‘green building’
principles through a value engineering approach that
encompasses the impacts over the building’s lifespan
(Bartlett & Howard, 2000).
A greater use of LCC was encouraged by a growing
recognition of it as a valuable approach. Cole and
Sterner (2000) developed some strategies to address
the disparity between the theoretical promise of LCC
and its practice in the context of building design.
They advocated that, firstly, there should be improved
communication of the merits of LCC so that the use of
it becomes a strategic choice, especially in terms of
wanting to achieve higher performance goals for
green buildings. Related to that, Sterner (2000) rec-
ommended the adoption of a number of demonstration
projects in the building sector that would be monitored
and evaluated for the cost reductions created through
the applications of LCC to investment appraisals. As
such, the actual evidence would serve to stimulate a
more widespread use of LCC. Secondly, there should
be improved quality and accessibility of cost and per-
formance data in order to reduce considerably the
effort required to use the LCC methods, as well as
increase the confidence in the results and any related
decisions.
From the sustainable building perspective, Bogen-
stätter (2000) could see potential for the use of LCC.
The need to influence critical decisions related to con-
struction and operating costs, via the use of LCC,
occurs in the early stages of the design process where
potential is highest. At the same time, Bogenstätter
advocated the need to set ecological targets that are
much broader than those of environmental metrics.
As such, the performance requirements had also
5
 Goh and Sun
needed to involve the accounting for direct and indirect
impacts on ecological resources, e.g. the preservation
or enhancement of natural resources and surrounding
ecosystems. With the performance specifications
expressed as costs and targets, they would give archi-
tects and engineers certainty when planning project
goals, especially if the target values are constantly ver-
ified and adjusted to ensure that they are relevant. For
environmentally sustainable development using an
LCC approach, a case study of an environmentally
high-performing commercial office building in Mel-
bourne, Australia, examined how it can be built for a
cost that could be fully substantiated in commercial
terms when taking into account the capital and
running costs. This study by Aye et al. (2000) demon-
strated the use of standard LCC methods in decision-
making at the feasibility level defined as ‘the outcome
of cost and value analysis procedures built into an
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economic feasibility study’ (Robinson, 1986, p. 15).
The other two levels of complexity of LCC available
as described are the experiential and the technical.
Also justifying the need in practice for using LCC in
strategic decisions on environmentally responsible
investment in buildings, Gluch and Baumann (2004)
identified some issues that are critical to its practical
application: the availability and reliability of environ-
mental data, the user’s perceived benefits of adopting
LCC in investment decisions, and an understanding
of the conceptual definitions and methods to lessen
the confusion caused by the diversity in terms and
meaning.
At the building component level, the LCC approach was
applied to enable a whole-life cost analysis of some
selected carbon and energy-saving technologies for redu-
cing CO2 emissions within the UK domestic housing
sector. Pellegrini-Masini et al. (2010) presented the
results of three sets of carbon and energy-saving inter-
ventions to two housing variants prominent in the UK
housing stock (i.e. the semi-detached dwelling and
detached dwelling) over a 25-year period from 2005 to
2030. The interventions that were applied, classified as
‘comprehensive’, ‘complete’ and ‘limited’, mainly
relate to the upgrading of the building fabric and venti-
lation systems. Similarly, the LCC concept was applied
at the building component level to study the economic
feasibility of using conventional and transparent insula-
tion facade (TI-facade) systems for office buildings in the
UK (Wong et al., 2010). The LCC of the buildings with
conventional facades were compared with those with TI-
facades to determine the optimum energy and cost per-
formance of the external cladding of high- and low-rise
office buildings. The results showed that indeed LCC
could be used to evaluate effectively the economic feasi-
bility of low carbon technologies like the TI-facade
systems and the methodology developed would be appli-
cable as a standard for carrying out the assessment of
feasibility of similar technologies to be used in other
buildings.
6
Limitations of LCC
Starting in the 1980s in the UK, Bird (1986) had
offered a broader view of the benefit of applying
‘costs-in-use’. The objective was not necessarily to
reduce running costs, or even total costs. Instead, the
objective was:
to enable clients and building users to know how
to obtain value for money in their own terms, by
knowing what these costs are likely to be and
whether the performance obtained warrants par-
ticular levels of expenditure.
(p. 281)
Clearly, the benefits of LCC as a concept had been
also underscored by Cole and Sterner (2000) as one
of the several methods that could be used to
account and provide for a more comprehensive
view of costs. LCC relates to ‘total cost’ accounting
except for some other direct, indirect, contingent
and less quantifiable costs, as well as that of ‘full
cost’ which also considers environmental and social
costs. However, historically, there appeared to be a
general lack of acceptance of the method in research
as well as in industry practice (Bird, 1987; Cole &
Sterner, 2000; Gluch & Baumann, 2004; Johnson
et al., 1987; Marshall, 1987; Sterner, 2000; Sesana
& Salvalai, 2013).
Existing di⁄culties
The bulk of the literature had highlighted the problems
and difficulties often associated with the use of the
method. For instance, Johnson et al. (1987) had
found that, in reality, the subjective factors dominated
the facility design and management decisions even for
some operational aspects. The importance of qualitat-
ive data in making those decisions helped to explain, in
part, why life-cycle cost principles were not effectively
applied. Johnson et al. had highlighted a limitation in
applying the traditional life-cycle cost procedures
since many of the factors involved were hard to
predict and difficult to fit into mathematical analyses.
This problem arises due to non-economic qualitative
policy considerations that would often dominate the
decisions, making LCC in the decision process less
effective than originally assumed. Bird (1987)
acknowledged the notable constraints to the
implementation of ‘costs-in-use’: the fragmentation of
responsibilities for finance of capital and revenue
expenditure, difficulties of obtaining sufficient and
appropriate historical data, and lack of agreement on
the basis of calculations and the appropriate discount
rate. However, alternative contract procurement
arrangements – public – private partnerships (PPP)
and the private finance initiative (PFI) – meant that
investors and developers were given a financial stake
in the lifetime performance of buildings and infrastruc-
tures. For PPP arrangements, contractors would own

and operate public facilities for a fee through long-term
concessions granted by the government (Akintoye,
Beck & Hardcastle, 2003; Bartlett & Howard,
2000). As such, an imperative arose for the supply
side to assess the details of the project life, including
the life of materials, through LCC methods and then
link these to the funding and operational plans when
initiating investments and providing business solutions
(Caplehorn, 2012).
Marshall (1987) had broadly discussed the difficulties
in applying LCC, including all the other building
economics methods. These concerns relate to pro-
blems of data, uncertainty, as well as attitudes of
the building community. On variability of cost data
as a problem of LCC application and the need to
collect cost and performance data for buildings, the
suggested direction forward was for current research
Downloaded by [University of Exeter] at 23:03 20 October 2015
to examine how to improve the quality and quantity
of data on construction, operation, maintenance and
repair. This information had to be provided early in
the design stage in order for alternative designs to
be better evaluated before major project commitments
were made. In addition, as recommended, coping
with uncertainty when dealing with parameters,
such as future building performance, energy prices
and building life prediction, could involve applying
sensitivity analysis, expected value analysis, risk
analysis using simulation models, as well as
methods that concern adjusting payback periods and
discount rates.
Cole and Sterner (2000) cautioned there can be a host
of methodological problems and limitations associated
with the techniques due to the application of a combi-
nation of considerable amounts of hard and soft data.
This could result in inaccuracy caused by extrapol-
ation into the future, lack of universal methods, stan-
dard formats and useful software to increase
acceptance and use. It could limit the application of
LCC based on the distinct characteristics of building
as a process and product. For example, the longer life-
span of buildings may be attributable to a lack of
access to reliable performance data. Accessibility to
reliable data as input to the LCC analysis highly influ-
ences its final outcome. The quality and accuracy of
the available information (operational cost, life cycle
performance of materials, components and systems,
etc.) would initially be based on assumptions that are
more speculative than certain. In a specific study of
LCC use in the Swedish building sector, Sterner
(2000) had, among other constraints, mentioned the
lack of sufficient cost data and accepted industry stan-
dards for describing the life-cycle behaviour of facili-
ties and various building systems. These are key
aspects that require improvement before there could
be expanded use as the applicable cost data and per-
formance standards serve as critical inputs in LCC
calculations.
Development of LCC
New green building issues
The concept of life-cycle thinking in green building
overlaps with that of LCC. However, going a step
further, Bogenstätter (2000) argued for LCC use in
the early design phases. He stressed that up to 80%
of the environmental pollution and building operations
costs were determined by the programming and build-
ing specifications prepared in the early design phases.
The basis of this argument was that if a long-term
view had been given as an ecological target, then the
ecological value would be the inverse of the sum of
impacts caused over the lifespan of a building com-
ponent or even the whole building. A reduction of
energy consumption and emissions into the environ-
ment occurs if properties are used for as long as poss-
ible to ‘discount’ their impact. In other words, by
extending the average useful life of buildings and/or
their components, it would increase the productivity
of resources. However, Bogenstätter highlighted that
the integration of LCC with ecological requirements
during the early design phases and the estimation of
the building/component lifespan occurs before the
design process began. Other green building researchers
had also proposed the use of additional techniques (e.g.
scenario forecasting, sensitivity analysis, probability
analysis, decision trees and Monte Carlo simulation)
to enhance estimation of the long-term environmental
costs in LCC. This would overcome the weaknesses in
the approach by lowering the level of uncertainty of
future consequences (Gluch & Baumann, 2004;
Sesana & Salvalai, 2013). Other limitations of LCC
were mentioned, besides those relating to environ-
mental decision-making, which include a lack of avail-
ability and reliability of data, reliance on many
estimated variables due to the complexity of the build-
ing and building process, laborious analyses, subject to
biases of the decision-maker, inconsistencies due to the
choice of discount rates and unreliable estimation of
life cycles, etc.
Data and method
The papers were mainly obtained from a few major
academic journals, namely Construction Management
and Economics, Building and Environment, Building
Research & Information, and Construction Engineer-
ing and Management. They were selected for their
quality as peer-reviewed journals and longer history
as construction management journals. In effect, it
allowed for the consistent tracing of papers that are
within the defined aim and scope of the journals over
a reasonable length of time (in this instance over 29
years) to ascertain the state of LCC applications. The
other publications consisted of one paper from
Journal of Facilities Management, one from Journal
of Engineering, Design and Technology, eight books
and one conference paper. The selected publications
numbered 38 journal articles, eight books and one
7
 Goh and Sun
conference paper. As the choice was based on the
authors’ knowledge and judgement, some papers may
have been omitted despite the author’s efforts to
ensure that the search and selection were done
thoroughly.
The 47 publications (i.e. the journal papers, books and
conference paper) were, firstly, separated into those
that had applied LCC to conventional buildings or
green buildings. The first set contained 26 publications,
while the second set had 19. Next, in each of the two
sets of publications, those that had described the math-
ematical concepts were picked for conducting the
review of LCC methods. A total of 19 publications
were collected for that purpose. Further to that, those
that had made known the assumptions for the key
input parameters in the LCC models were selected
for gathering historical information about building
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lifespan, discount rate and proportions of capital to
operating costs. A total of 17 publications were
involved in the extraction of such information.
Data analysis and results
In the first stage of analysis, 26 publications were
found to relate to LCC research on conventional build-
ings. The majority of them were carried out in 1984,
1986 and 1987. Those on green buildings had 19 pub-
lications, mainly started in 2000. This breakdown of
the number of publications is shown in Table 1.
Based on the year of publication, the distribution of
the publications was plotted to depict the trend for
research on conventional and green buildings. The
result of the plot is presented in Figure 1.
Next, from the 20 publications that contained a math-
ematical description of the concepts applied, the
analysis revealed that eight of them were relevant to
the area of environmental studies of buildings and
their components, as well as improved technologies.
The other 12 publications generally were focused on
conventional buildings or their components. As the
majority of the publications had dealt with both the
initial capital and running costs, only two were
focused on studying running costs. Some of the publi-
cations were targeted at specific types of developments
such as university, office, hospital and residential
buildings, while the majority, comprising 14 publi-
cations, were non-specific. The result of the classifi-
cation of the publications by LCC concept is shown
in Table 2.
Finally, information about the assumptions made for
the key input parameters of LCC models was extracted
from the relevant publications; the result is tabulated in
Table 3. The input parameters that were commonly
found across most of the publications are the lifespan
of buildings, proportions of initial capital to running
costs (in percentage terms) and discount rate (in per
8
cent). The historical data gathered about the par-
ameters were analysed through graphical plots of the
values of running cost as a percentage of LCC by
type of buildings and for three categories of building
lifespans, i.e. less than 30 years, 30 –50 years and
more than 50 years. The results that display the pat-
terns of distribution are shown in Figures 2 –4.
Discussion
The three main findings are as follows:
. An increasing trend exists for publications on LCC
methods for evaluating options of design and per-
formance of green buildings. The bulk of literature
started in 2000 and continues to the present
(Figure 1).
. A distinction exists in how LCC methods had been
applied to model and estimate costs of convention-
al and green buildings. For green building
research, LCC was applied to evaluate both life-
cycle costs and benefits. However, only life-cycle
costs were considered for conventional building
research (Table 2).
. Consistent patterns and trends were found for the
different categories of buildings (Figures 2– 4).
This is based on the analysis of historical infor-
mation about building lifespan, discount rate and
proportions of capital to operating costs.
In essence, the first finding verifies the hypothesis that a
growing trend of LCC methods is being applied to
research on green building. This may be due to the
domain’s increasing focus on creating solutions based
on choices involving options relating to long-term
economic and environmental performance and
capital expenditure. The second finding distinguishes
between conventional and green buildings for the
types of concepts, approaches and methods. The
third finding has gathered information by type of build-
ings about assumptions made about the lifespan of
buildings, the proportion of initial capital cost to oper-
ating cost and discount rate to produce a range of
values that would serve as a centralized source of refer-
ence. It has also produced a set of patterns that are con-
sistent to allow researchers to have a better
understanding of the distribution of running cost, as
a percentage of LCC, across different categories of life-
spans for various types of buildings. This can assist
with making informed choices of the values for the
input parameters to address the problem highlighted
by Sterner (2000) on the lack of sufficient cost data
and industry standards that had hampered expanded
use of LCC. Other researchers also mentioned the
difficulty in estimating the lifespan of a building
 Development of LCC

Table 1 Breakdown of the total number of publications by life-cycle costing (LCC) research on conventional and green buildings

Year Publication S/N Author(s)

On conventional buildings On green buildings

1960 1 Grant & Ireson (1960) ^

1984 2 Bishop (1984) ^
3 Brandon (1984) ^
4 Flanagan & Norman (1984) ^
5 Linstone (1984) ^
1986 6 Bird (1986) ^
7 Robinson (1986) ^
8 Simon (1986) ^
1987 9 Bird (1987) ^
10 Bromilow & Pawsey (1987) ^
11 Flanagan et al. (1987) ^
12 Johnson et al. (1987) ^
Downloaded by [University of Exeter] at 23:03 20 October 2015

13 Marshall (1987) ^
1993 14 Henn (1993) ^
1995 15 Perret & Jouvent (1995) ^
1996 16 ^ Epstein (1996)
17 MacSporran & Tucker (1996) ^
1997 18 Cook (1997) ^
1998 19 Al-Hajj & Horner (1998) ^
2000 20 ^ Aye et al. (2000)
21 ^ Bartlett & Howard (2000)
22 ^ Bogensta«tter (2000)
23 ^ Cole & Sterner (2000)
2002 24 Kirkham et al. (2002) ^
25 ^ Gurung & Mahendran (2002)
2004 26 Mithraratne & Vale (2004) ^
27 ^ Gluch & Baumann (2004)
28 Kishk (2004) ^
29 Minami (2004) ^
30 ^ Emmanuel (2004)
2005 31 ^ Wang, Zmeureanua, & Rivard (2005)
2006 32 Stoy & Kalusche (2006) ^
33 Ive (2006) ^
2008 34 ^ Hasan,Vuolle, & Siren (2008)
2009 35 Arja, Sauce, & Souyri (2009) ^
2010 36 ^ Pellegrini-Masini et al. (2010)
37 ^ Wong et al. (2010)
38 ^ Tuhus-Dubrow & Krarti (2010)
2012 39 ^ Konig & De Cristofaro (2012)
40 ^ Sacks et al. (2012)
2013 41 ^ Sesana & Salvalai (2013)
42 ^ Perini & Rosasco (2013)
43 Zayed & Moselhi (2013) ^
44 ^ Langston (2013)
2014 45 ^ Wang,Wei, & Sun (2014)

Total 26 19

9
 Goh and Sun
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Figure 1 Number of publications for life-cycle costing (LCC) research on conventional and green buildings
(Bogenstätter, 2000; Cole & Sterner, 2000; Gluch &
Baumann, 2004; Marshall, 1987), as well as choosing
the appropriate discount rate (Bird, 1987; Gluch &
Baumann, 2004; Marshall, 1987).
Another major concern raised by researchers was the
uncertainty in estimating cost far into the future.
They argued that any calculated LCC may have little
resemblance to future real cost (Cole & Sterner,
2000; Gluch & Baumann, 2004; Marshall, 1987;
Sesana & Salvalai, 2013). Since it is reasonable to
assume it would be more uncertain to estimate the
running cost of a building than the initial capital
cost, the graphical analysis of data has focused on
this aspect. Consistent patterns of the distribution of
running costs as a percentage of LCC across different
types of buildings are shown in Figures 2– 4. These
are intended to provide collated information about his-
torical assumptions made on such a cost. It can be
observed that researchers tended to assume a higher
running cost for commercial buildings, as a percentage
of LCC, than that for residential, institutional and
industrial buildings. The exception is for building life-
spans of 30 –50 years where the graph has shown the
highest percentages belonging to institutional building
type (Figure 3). Nevertheless, making a generalization
from this is valid since commercial buildings do have a
higher content of air-conditioning, mechanical and
electrical installations which require more cost to
operate and maintain, especially if compared with resi-
dential buildings (Figure 2). However, no consistent
pattern is exhibited for institutional buildings. It can
be inferred that researchers tended to assume a wide
range of running cost percentages for this development
type.
10
Future directions for LCC research
Acknowledging the true value of LCC, Cole and
Sterner (2000) described the concept as one of the
few methods that accounts and provides for a more
comprehensive view of costs. Going forward, as they
had suggested, and in the direction of supporting
better green building research, LCC must evolve to
become a holistic concept to account for ‘full-cost’,
taking into consideration environmental and social
costs as well. Indeed, the main findings of the review
have provided evidence for a need to take a new direc-
tion for research.
Integrating life-cycle methods
It could start by exploring ideas of creating more com-
prehensive solutions that would account for all the
costs and benefits of competing sustainable building
options. More consideration needs to be given to the
possibility of combining two or more life-cycle
methods in relation to life-cycle assessment, life-cycle
energy analysis, LCC, and life-cycle zero energy build-
ing. This would assist with creating integrated and
optimized solutions for designing (best value) zero
energy/carbon buildings. In essence, the new solutions
must be able to link environmental issues with financial
consequences. The benefit is that decision-makers
would have a holistic view of the different alternatives
available to them in the early phases of design to opti-
mize the choices for sustainable building. The targets
to achieve, as mentioned, would be to strive towards:
an intelligent design to use less resources and less
costs, low tech to ensure low energy consump-
tion and low maintenance costs, planning for
 Development of LCC

Table 2 Classi¢cation of publications by life-cycle costing (LCC) concept, type of building, components considered and area of study

S/N Author(s) LCC concept, approach or methodology Type of LCC components Area of study
(year) building considered

1 Grant and
Ireson (1960)
2 Flanagan and
Norman
(1984)
3 Bishop (1984)
4 Bird (1986) Discounted present value of costs Non-speci¢c Capital and General
running costs
5 Marshall (1987)
6 Johnson et al.
(1987)
7 Bromilow and University
Downloaded by [University of Exeter] at 23:03 20 October 2015

Pawsey buildings
(1987)
8 Flanagan et al. Discounted present value of costs (with Non-speci¢c Capital and General
(1987) sensitivity and probability analysis to running costs
ascertain risks and uncertainty)
9 Al-Hajj and Discounted present value applied to cost University Running costs only General
Horner signi¢cant items buildings
(1998)
10 Aye et al. (2000) O⁄ce Eco-sustainable
building development
11 Cole and Discounted net present value of costs and Non-speci¢c Capital and Green building
Sterner bene¢ts running costs
(2000)
12 Pellegrini- Housing Environmentally friendly
Masini et al. technologies
(2010)
13 Bartlett and Discounted net present value of costs and Non-speci¢c Capital and Green building
Howard bene¢ts (by combining LCC with life-cycle running costs
(2000) assessment (LCA))
14 Kirkham et al. Stochastic modelling of cost parameters Hospital Running costs only General
(2002) buildings
15 Kishk (2004) Modelling of cost parameters using Non-speci¢c Capital and General
probability density functions and fuzzy running costs
numbers
16 Gluch and Discounted net present value of costs and Non-speci¢c Capital and Environmental decision-
Baumann bene¢ts (by combining LCC with LCA) running costs making
(2004) Integrated environmental and micro-
economic analysis tool
Integrated cost and decision analytical
tool
17 Wong et al. Discounted net present value of costs and O⁄ce Capital and Environmentally friendly
(2010) bene¢ts with sensitivity analysis buildings running costs external cladding
systems
18 Sesana and Discounted net present value of costs and Non-speci¢c Capital and Nearly zero energy building
Salvalai bene¢ts (in the context of life cycle zero running costs
(2013) energy building)
19 Zayed and Modelling cost and incorporating Non-speci¢c Capital and General
Moselhi uncertainty and subjectivity of experts via running costs
(2013) fuzzy-based methods
20 Langston (2013) Multiple criteria visual-based decision Non-speci¢c Capital and Economic, social and
support tool using three-dimensional running costs environmental decision-
spatial coordinates making

11
 Goh and Sun

Table 3 Summary of assumptions for the key input parameters applied to life-cycle costing (LCC) models

Publication Author(s) (year) Type of Location Sample Assumed Assumed Assumed Assumed
S/N building S/N lifespan capital cost running cost discount
(years) (as a % of (as a % of rate (%)
life-cycle life-cycle cost)
cost)

1 Ive (2006) Commercial UK 1 20 6% 94% 7%

2 Pellegrini-Masini Residential 2 25 63% 37% 3.5%
et al. (2010) 3 25 58% 42% 3.5%
4 25 16% 84% 3.5%
5 25 61% 39% 3.5%
6 25 20% 80% 3.5%
7 25 68% 32% 3.5%
3 Flanagan Institutional 8 30 38% 62% 2%
et al. (1989)
4 Wong et al. (2010) Commercial 9 60 25% 75% 4 ^10%
10 60 28% 72% 4 ^10%
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5 Wong et al. (2010) Commercial Malaysia 11 60 19% 81% 4 ^10%

12 60 21% 79% 4 ^10%
6 Tuhus-Dubrow Commercial US 13 30 50% 50% 5%
and Krarti (2010) 14 30 34% 66% 5%
7 Kshirsagar, Institutional 15 38 12% 88% 6%
El-Gafy, & 16 38 62% 38% 6%
Abdelhamid 17 50 39% 61% 6%
(2010) 18 50 48% 52% 6%
19 109 41% 59% 6%
20 109 62% 38% 6%
8 Aye et al. (2000) Commercial Australia 21 25 44% 56% 10%
22 25 63% 37% 10%
9 Gurung and Industrial 23 50 65% 35% 11%
Mahendran 24 50 54% 46% 7%
(2002) 25 50 46% 54% 5%
26 50 60% 40% 9%
Commercial 27 50 49% 51% 7%
28 50 55% 45% 9%
29 50 60% 40% 11%
30 50 42% 58% 5%
10 Bromilow and Institutional 31 100 59% 41% 6%
Pawsey (1987)
11 Mithraratne & Institutional New Zealand 32 25 45% 55% 7%
Gabe (2010) 33 50 29% 71% 7%
34 75 22% 78% 7%
35 100 18% 82% 7%
12 Mithraratne and Residential 36 100 42% 58% 5%
Vale (2004)
13 Bogensta«tter Commercial Italy 37 95 24% 76% 2%
(2000)
14 Sacks, Nisbet, Commercial South Africa 38 20 17% 83% 2.2%
Ross, & 39 20 29% 71% 2.2%
Harinarain
(2012)
15 Wang, Commercial Canada 40 40 75% 25% 9%
Zmeureanua, 41 40 80% 20% 9%
and Rivard
(2005)
16 Cook (1997) Commercial Not stated 42 25 25% 75% Not stated
17 Wang,Wei, and Residential Not stated 43 30 31% 69% Not stated
Sun (2014)

12

Figure 2 Plot of the distribution of running cost (RC) as a
percentage of life-cycle costing (LCC) by type of building:
assumed lifespan , 30 years
Downloaded by [University of Exeter] at 23:03 20 October 2015
Figure 3 Plot of the distribution of running cost (RC) as a
percentage of life-cycle costing (LCC) by type of building:
assumed lifespan ¼ 30^ 50 years
Figure 4 Plot of the distribution of running cost (RC) as a
percentage of life-cycle costing (LCC) by type of building:
assumed lifespan . 50 years
Development of LCC
tomorrow to attain less costs in the future, and
more quality for the same money or same
quality for less money.
(Bogenstätter, 2000, p. 384)
Leveraging LCC via BIM
Building Information Modeling (BIM) could be instru-
mental in driving overall costs down in future since this
tool is expected to change the way information is
managed in the construction industry. BIM might be
a vehicle for achieving value in LCC, as Race (2013)
had recommended. However, specific functionality
with data requirements for LCC (e.g. escalated costs
and present value costs, discount rates and study
periods or assumed lifespans) have to be incorporated
into the BIM model. This could provide cost estimators
with the ability to generate the quantities, cost them
and calculate the LCC. Kehily, McAuley, and Hore
(2012) had produced a whole-life cost analysis tem-
plate that can be built in to provide four-dimensional
BIM users with the financial tools to select the most
economical and sustainable building solution.
Better decision support tools
As highlighted by Gluch and Baumann (2004), making
environmental decisions is complex and decision-
makers need practical tools to help them learn about
the choices available before deciding on the best sus-
tainable option. They had recommended a way
forward, which is to develop tools that will capture
and be incorporated into the decision-making process
or involve people in that process. More recently, the
concept of enacting, understanding and visualizing
decisions had been proposed by Langston (2013) to
create a high-level decision tool that involves multiple
criteria of sustainable development in the context of
the built environment. The new approach aims to
enhance decision-making through the integrated and
visualized model that uses three-dimensional spatial
coordinates (x, y, z) to represent a built infrastructure’s
economic ratio (return on investment to energy usage),
social ratio (functional performance to loss of habitat)
and sustainability risk for project appraisal.
Users’ interaction with the building
Empirical results have shown that whole-life cost per-
formance can be significantly affected by how users
interact with the building over its lifespan (Mithrar-
atne, Vale, & Vale, 2007; Mithraratne & Gabe,
2010). Post-occupancy empirical assessments of
whole-life cost are rare in practice. Therefore, there is
a strong basis for future research to develop knowledge
in the area of ‘sustainable living’. There is a crucial
need to look beyond the design and construction
phases to study what happens once the building is
13
 Goh and Sun
occupied, particularly the behaviours of users and their
impact on operating costs, to trace the causes to justify
revisions to the original budgetary plans. Linking that to
Ferry and Flanagan’s (1991) earlier proposition to
adopt LCC as a (total) management system, they had
explained that if a continuum of life-cycle costs is intro-
duced from the capital planning stage to operation and
maintenance, it will be possible to monitor at any time if
the out-turn is proving different from the (initial) esti-
mates. This would allow future budgets to be modified
and would ensure they remain accurate.
Conclusions
The development of LCC for buildings was reviewed in
this paper from the late 1950s to today. The future
directions of research have signalled that there is still
Downloaded by [University of Exeter] at 23:03 20 October 2015
much work to be done for a conscious shift of focus
towards extending LCC to include considerations for
sustainability. It is clear that major improvements are
necessary to make LCC comparable with common
economic evaluation methods (e.g. benefit-to-cost
ratio, net benefits and savings-to-investment ratio, for
capital investment analysis related to buildings). The
directions are clearer, and choices more apparent, for
steps to bring building economics to the next level
with respect to LCC. It will be appropriate to start
by taking into account the present and future expec-
tations of built environments having to achieve best
value in combined economic, social and environmental
terms in order to deliver projects that can meet the
higher standards of sustainable development.
Acknowledgements
The authors wish to thank the three anonymous refer-
ees for their constructive comments and helpful sugges-
tions made on an earlier version of the paper.
Disclosure statement
No potential conflict of interest was reported by the
authors.
Funding
The review work conducted for publication was
wholly funded by the National University of Singapore
[grant number R296000144646].
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