Project budgeting decisions: a life cycle costing approach

Abstract

This report applies a Life Cycle Costing approach to cost optimisation, developed in Australia by F J Bromilow and S N Tucker, to chosen New Zealand building project costs. Research confirms Australian findings which reveal that current practice in project budgeting produces both total life and initial capital costs that exceed those that the above approach indicates as optimal. Those operating and capital costs presently typical of Wellington (NZ) commercial/related retail buildings were evaluated using the Life Cycle Costing approach. The operating and capital costs of a group of buildings in the above category, constructed in Wellington over the last decade, were similarly evaluated. Results suggest that current practice in Wellington may show a similar divergence from the theoretical optimum as the Australian research indicated. The results should be of most interest to building owners in situations where appreciation of land and building value is not as great a consideration as the revenue generating potential of the building. Further research is required if the approach is to provide a more comprehensive examination of the utility of a building to owners concerned with enhancing fixed asset appreciation (of the improved values of their sites) by increasing initial capital input.