Monday, February 15, 2010

The life-cycle cost (LCC) analysis takes into account all expenses that incur over a time span for a system. When different design scenarios are considered, this tool enables the designer to compare the net savings of different alternatives and choose the most cost-effective option. However, the simple payback analysis considers the short term return of investment for a system during the first year. Two methods i.e., manual calculation and Excel Spreadsheet, are used to determine the net savings and simple payback of a baseline system and nine other design options (glazing) and results are discussed below.
Manual Calculation:

Based on the net saving, ALT 9 (PPG - SolarBan 2000) offers the most saving over 25 years ($714,380) followed ALT 7 (Viracon -VE7-55 -Low-E Azurlite) which results in $707,770 saving. Although both designs require an initial one time investment it pays off in the long run by reducing the utility costs.

From Figure 1, it is clear that alternatives 7 and 9 offer the largest savings compared to a big others options.

Figure 1 – Net savings using manual calculation

The simple payback is the ratio of the incremental first cost over first year annual savings. Hence, it focuses on the short term returns. Figure 2 shows the simple payback results for the 9 different alternatives.

Figure 2 – Simple Payback using manual calculation

It is obvious that this method yields different results from the net saving (see Figure 1). This plot indicates the best design recommendation based on this approach is ALT 1 (Single Pane Azurlite) with a simple payback ratio of 0.8 which pays for its investment during the first year. ALT5 (Viracon -VE1-55 -Low-E Clear) comes second with a 2.9 payback value.
Excel Spreadsheet Calculation:

Figure 3: Net savings using Excel Spreadsheet

Figure 3 shows the net savings obtained from Excel Spreadsheet. As this figure indicates, the most cost-effective option over is ALT 9. This offers the largest cost saving over 25 years of service. This is inline with the conclusion from manually calculated data.

Figure 4 - Simple Payback using Excel Spreadsheet

Figure 4 shows the simple payback values calculated with the spreadsheet for nine different design alternatives. Similar to Figure 2 this graph also indicates that ALT1 offers the best return for investment during the first year.


The simple pay back is easy to estimate and indicates the return of an investment during the first year. However, its focus is on the short term fails to capture all future costs and benefits, capital replacement, life-cycle utility costs, operations cast, maintenance costs, and the time value of money. On the other hand, net saving parameter could provide the value of an investment over a time period and the savings in the long run.

Both manual and spreadsheet methods yielded comparable results. Although there were some insignificant deviations in the results of these two methods it did not alter the final recommendation.

No comments: