1.1 Gates Computer Building, where Google began

The LCAM approach and especially the life-cycle costing of the strategic assets help in comparing the technical, operational, and financial alternatives. Strategic decisions should be based on comparisons of the present value of lifecycle costs of the various considered technical and financial alternatives. For instance, a water service system can be developed with overhead reservoirs that provide water with gravity; another alternative is permanent water pumping. The first requires higher initial investment costs, but the second costs much more to operate (electricity and maintenance). Experience suggests that a pumping system appears to be a lot more expensive than a gravity system in the medium to long term (if measured by life-cycle costs). Thus, higher decisionmakers should discuss and select strategic projects based on life-cycle cost information about alternatives, and possibly with an analysis of various modalities instead of promoting project options with the least initial investment cost.

Life-cycle costs and cost structure Life-cycle costs (LCCs) depend greatly on asset specificities; the size and structure of life-cycle cost for an office building are quite different from those of a wastewater plant or a compactor truck. For instance, the world-famous Gates Computer Building at Stanford University, Palo Alto, California, where the search engine Google began (photo 1.1), is an extravagant building with an initial project cost that represents a high 58 percent of the 30-year estimated life-cycle cost (figure 1.7); the utility costs represent another substantial 28 percent share of the estimated life-cycle cost (Stanford University 2005). Since it is unlikely that this building will be decommissioned after 30 years, we can assume that an LCC with a 60-year useful life would include a quarter of expenses for initial project cost, and a much greater share for operation and maintenance (O&M), while refurbishment may absorb a significant amount after 30 years.

PHOTO 1.1

Gates Computer Building, where Google began

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