How do managers and owners of commercial buildings make expensive, potentially business-altering roofing decisions? One helpful tool is life cycle cost analysis. What is a life cycle cost analysis? Why is life cycle cost analysis required?
Business buzzwords come and go. Remember “disaggregating the data,” “new normal,” or “paradigm shifts?” Is a life cycle cost analysis just a gathering of buzzwords, or is it a helpful tool? If it is, how can you get a handle on it and avoid confusion when discussing it with roofers, accountants, and other business leaders?
Life cycle cost analysis (LCCA) is a practical tool, not a gimmick. It is primarily a financial metric you can apply to your business decisions when facing multiple projects with similar performance requirements. You typically convert seven parameters to dollar values:
This helps you determine the total cost of the project, not this year’s expenditures by themselves. Your goal is to make the most of your investment by getting the greatest return on investment (ROI).
With LCCA, you weigh the money spent today and compare it to money you will spend in the future, using today’s dollars as a benchmark. You can rapidly total the dollar figures for each parameter and then compare various projects (or solutions to a problem your company faces) to see which has the lowest cost throughout its life.
There’s a Formula
Accountants and mathy types will rejoice to know LCCA has a formula in which you put dollar figures to three factors:
- C = the 0-year construction cost
- PV recurring is the present value of all recurring costs (aspects such as inspection, cleaning, repair, maintenance, waterproofing)
- PV residual value is the present value of residual value (scrap value) at the end of the project’s life
The formula, LCC = C + PV recurring – PV residual value, allows you to consider recovered costs, embedded costs, and initial cash outlays.
While gathering concrete numbers for these factors can be time-consuming, your roofer can play a valuable role in the process. For example, PV recurring means the present value of recurring costs far into the future, disregarding anticipated price increases due to inflation, scarcity, or high demand.
Let’s say your roofer offers three levels of inspection and maintenance programs, from spartan to deluxe. While you cannot put a realistic value on a deluxe program 15 years into the future, you can perform an apples-to-apples comparison by valuing every year’s maintenance at today’s cost, times the number of years the roof will function.
The process is repeated for all parts of the calculation and repeated for each program change or comparative method.
About That Roof
Suppose your local, reliable commercial roofer informs you that your Modified Bitumen (Mod-Bit) roof will need to be replaced within two years. You and your roofer have two years to determine a roof succession strategy, and LCCA can make that strategy easier.
You can compare the life cycle costs of replacing an economical Mod-Bit with a similar product or more modern, single-ply membranes like PVC, TPO, and EPDM. You perform four different LCCAs with each material.
To perform an LCCA effectively, you need expertise in areas you may not have, such as commercial roof pricing. That points to the value of keeping a strong, ongoing relationship with your nearby commercial roofer. When the time is right to consider roof replacement, your roofer can provide figures to slip into the LCCA formula, speeding up the selection of the ideal roofing material and installation process.
Your roofer also adds value to the process by identifying post-installation methods to make the most of maintenance programs, lower operations costs involving your roof, and preserve its life (affecting depreciation).
For example, suppose others within your organization balk at the idea of spending money every year on cleaning, inspecting, and maintaining your roof. In that case, your roofer can point to LCCA data showing the ROI of preventive maintenance.
Neither you, your accounting team, nor your roofer can perform all parts of a realistic LCCA alone. Work together as a united group to find the best method for all your roofing needs:
- Roof assets management
- New roof or re-roof material selection
- Tear-off and removal of the old roof, including recycling or carting
It is through LCCA that hidden gems in roofing value are uncovered. Your so-called “economical” Mod-Bit roof might be revealed to be extremely expensive over its life, despite its lower installation cost compared to single-ply systems. If you own or manage a commercial property in or around Fremont, Ohio, please contact us today at Damschroder Roofing Inc. for all of your roofing needs. We are ready to offer our expertise with life cycle cost analysis, roof coatings, maintenance of your low-slope roof, and much more. Your roof. Our reputation.