Understanding the Importance of Life-Cycle Cost Analysis

There are many factors that should be taken into consideration when budgeting for a new roof system.  A life-cycle cost analysis is a great way to account for these factors in a manner that presents the true cost of different roof options, which will ultimately help you decide which roof option is best for your company.

A life-cycle cost analysis is a methodology that allows us to analyze multiple roof options with different initial costs, yearly maintenance requirements, and expected service lives to compare their initial costs to the total costs of ownership.  The intent of a life-cycle analysis is to estimate all of the expected cash flows associated with different roofing options and discount the future expenditures back to what it would cost today.

The analysis tool used by your Garland representative utilizes the Weighted Average Cost of Capital (WACC), or required return on investment, for an organization within a specific industry group or market segment.  In the world of finance, this is the recognized way to bring all future cash flows back to today’s dollars.  Once each future expense has been converted back to its present value today, all the future expenses are added up for each roof option and compared against each other.  At this point, a fair comparison can be made across all roofing options to see what the actual cost of each roofing system would be today.

The end result can quickly display that a 15-year commodity roof that is initially 33 percent less than a 30-year high performance roof theoretically costs around 35 percent more over a 30-year period.  On a 500 square (50,000 sq. ft.) roof, what appears to be an initial $200,000 in savings will actually cost over $224,000 over a 30-year period, meaning the 15-year commodity option will cost over $424,000 more than its initial price over the course of 30 years.

Check out Frank Percaciante’s wiki post, Increasing Your ROI, for an in-depth understanding of how you can increase your ROI through the use of life-cycle cost analysis.