5. Life Cycle Cost Analysis
| Life cycle costs are measured in terms of capital expenditure and operating expenditure (O&M costs). Capital expenditure usually is calculated as the sum of the base construction cost, preliminary & pre-operative expenses, and the financing costs. Each of such component are set out below: |
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1. Base Construction costs: These are basic direct costs of the project
2. Pre-operative expenses: These include accounting/ management fees, legal fees, labor burden, expenses on rent, repairs, telephone bills, travel expenditures, utilities, etc. They reflect expenditure on administration, management, risks and profits.
3. Preliminary expenses: These are costs towards carrying out engineering studies such as land surveys, concept layouts, designing, drawing and preliminary studies.
4. Financing Costs: These are costs towards financing charges collected by lenders, interest during construction (IDC) etc.
While estimating capital expenditure, factors like the construction period, phasing of costs over the period, effective life of the asset etc., need to be considered.
Operating expenditures are measured in terms of the fixed costs for regular operation and maintenance activities, e.g., administrative costs, the variable costs that depend on the use of the respective facility and periodic costs that are major maintenance costs to be incurred once at specified time intervals.