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Sustainability 101: Lifecycle Costs

By Edited Jun 4, 2015 3 7

Going Green Doesn't Mean Spending Green

Sustainability and green products are not the wave of the future.  They are trends that have become embedded in most of the goods we buy and most of the services we perform, no matter which our selected industry. 

The most significant impact of sustainability and green products and services can be seen in the construction industry.  Within the construction industry, lifecycle costs are what drives the true meaning of sustainability.

Firstly, a brief definition of sustainability and green construction before I begin on lifecycle costs.

In construction, a sustainable product or sustainable method is a good or a way of performing a service in a way that reduces the amount of impact on the environment.  The environment, when used in the context of construction, does not only mean the actual physical environment surrounding us.  The environment also refers to almost every good, person, and service that can be effected by construction.

It has been suggested that going green and adding sustainable features to your construction project will bring additional costs.  Although you may be paying more up front for some goods and services, in the long run you will be saving not only the environment but money as well.

This is where lifecycle costs come into play.  Lifecycle costs are all of the costs and fees associated with a particular good throughout the duration of its usage from fabrication to re-sale.

Let’s take a look at an example to better illustrate this point.  For this example, we will assume you are building two homes that are exactly the same in every way, except for the heating, ventilating, and air conditioning (HVAC) units.

Option A: Traditional Air Conditioning Unit

For this example, our HVAC unit’s sales price is $8,000.  To have the unit installed and ready for usage will be $2,000.  This means when you move into your home, the HVAC unit will have cost you $10,000.

The traditional way of looking at construction and construction costs, the thought process stopped at this point.  However, just because the unit is installed does not mean the unit will not cost you anymore.

Each month you will have to pay for the energy bill, which we will say will be $200 per month just for the traditional unit.  Also, every 5 years you will have to pay $500 for the HVAC unit to be serviced and repaired. 

Finally, let’s assume that the unit will last 20 years and can be sold at the end of its useful life for $1,000.

That makes $2,400 per year for utilities and $100 per year for maintenance.

Here’s the math:
Year 0 (purchase and installation): $10,000.
Yearly Cost: $2,500 for utilities multiplied by 20 years is $50,000.
Sale Value: -$1,000
Total Lifecycle Costs:  $10,000 + $50,000 - $1,000 = $59,000.
Yearly Lifecycle Cost: $59,000 divided by 20 years = $2,950.

The yearly lifecycle cost is an average of what you would be paying each year if you combined all costs and revenues from the purchase, usage, and sale of the unit.

Option B: Sustainable Air Conditioning Unit

For the sustainable example, our HVAC unit’s sales price is $12,000, $4,000 more than the traditional unit.  To have the unit installed and ready for usage will be $2,200.  (With some sustainable products, it may require a more advanced installation technique.  However, this cost is typically minimal.)  This means when you move into your home, the HVAC unit will have cost you $14,200.

When looking at the lifecycle costs of the unit:

Each month you will have to pay for the energy bill, which will be $50 per month.  The advantage of using a sustainable unit is that it will save on energy consumption – which will save you from paying more on your monthly energy bills. 

Also, every 5 years you will only have to pay $200 for the HVAC unit to be serviced and repaired because sustainable units perform better. 

And finally, let’s assume that the unit will last 20 years and can be sold at the end of its useful life for $2,500.  (Typically, sustainable units also last longer, but to make the math simplier to follow, we will say the sustainable unit has the same lifespan as a traditional unit.)

That makes $600 per year for utilities and $40 per year for maintenance.

Here’s the math:
Year 0 (purchase and installation): $14,200.
Yearly Cost: $640 multiplied by 20 years is $12,800.
Sale Value: -$2,500
Total Lifecycle Costs:  $14,200 + $12,800 - $2,500 = $24,500.
Yearly Lifecycle Cost: $24,500 divided by 20 years = $1,225.

Traditional vs. Sustainable Methods

When comparing the yearly lifecycle costs between both units it is easy to see that the sustainable unit will cost you much less over the long run.  You will be saving, on average, almost $2,000 per year. 

Although the sustainable unit required an additional $4,200 up front (for the product and the install service), in the end, you can save a considerable amount of money when selecting green and sustainable products.

Something to consider next time you think going green will cost you more money.

 

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Comments

Jul 23, 2011 10:02am
Phoenix737
Thanks for a great article! Many sales people out there capitalize on people's refusal (or ignorance) to consider what in personal finance is known as the total cost of ownership. Expensive products such as cars and appliances can generally be bought more cheaply if they're older (and thus also generally less energy efficient and environmentally friendly). However, the cost of operating and maintaining this "cheaper" equipment gradually mount, and you're before long you're paying more for an inferior product than you would've if you'd dropped a little more change during the initial purchase.
Jul 25, 2011 6:40am
nicohohman
I couldn't agree with you more. It can be very difficult to try to sell a more expensive model to someone with the promise that they will be saving money in the future if all they are concerned about is saving money now. It can hurt not only themselves but also the built environment.
Jul 25, 2011 2:41pm
southerngirl09
Very good article on sustainability. Well written explanation of lifecycle costs. Thanks for sharing, and congratulations on having your article featured.
Jul 25, 2011 7:07pm
nicohohman
Thanks for the congratulations. It was pretty neat to see that I had been featured. I'm glad you liked the article too.
Jul 29, 2011 2:24pm
kvn8533
I think you really need to consider your payback period. I the HVAC case above your payback period is about 2 years, which is pretty short, howver if your payback period is 10 years then you really have to think about how long you plan to be in a home and whether or not you will get your money back when trying to sell the home. Most of the time it will be difficult to recover your cost through the sale of the home.
Aug 1, 2011 9:11pm
nicohohman
I appreciate the comment. You are right, this was a very short pay back period and most pay back periods take longer (LEED Platinum payback periods are almost 30 years.) This article was mostly an example explaining how overall (no matter when the payback period is realized) green products are less expensive.
Aug 2, 2012 6:44pm
RyanJJames
Love the perspective you are bringing - keep up the good work.
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