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Value engineering is a systematic approach to improving the value of a project by analyzing its functions and reducing costs without sacrificing quality. Calculating life cycle cost savings helps organizations understand the financial benefits of implementing value engineering strategies over the entire lifespan of a project.
Understanding Life Cycle Cost
Life cycle cost (LCC) includes all costs associated with a project from inception to disposal. This encompasses initial investment, operation, maintenance, and end-of-life expenses. Accurate calculation of LCC provides a comprehensive view of a project’s financial impact.
Steps to Calculate Cost Savings
To determine cost savings through value engineering, follow these steps:
- Identify the baseline life cycle costs without value engineering.
- Analyze functions and identify areas for cost reduction.
- Implement value engineering modifications.
- Recalculate the life cycle costs with the proposed changes.
- Compare the original and revised costs to determine savings.
Calculating Savings
The savings are calculated by subtracting the revised life cycle costs from the original costs. The formula is:
Cost Savings = Original LCC – Revised LCC
This figure represents the total financial benefit achieved through value engineering efforts over the project’s lifespan.