Life cycle costing is a method of economic analysis for all costs related to building, operating, and maintaining an energy conservation measure (ECM) project over a defined period of time. Assumed escalation rates are used to account for increases in utility costs over time. Future costs are expressed in present day dollars by applying a discount rate that reflects the value of money invested elsewhere. All costs and savings can then be directly compared and fully-informed decisions can be made.
Were Harvard simply a developer whose interest in the buildings it constructs ended with the ribbon cutting, it might be understandable for the university to ignore ongoing operating costs. However, Harvard owns and occupies a large majority of the buildings it constructs, often for the full life of the building – decades into the future. Decisions made to cut costs in the capital budget up-front can easily lead to greatly increased maintenance and utility costs, burdening the university for years and years to come. This would not be an intelligent way for America’s most-long lived institution of higher education to operate. As a result, Life Cycle Costing is required as part of Harvard’s Green Building Standards.