Life-Cycle Cost Analysis of Infrastructure Projects - Governing the Nexus: Water, Soil and Waste Resources Considering Global Change - page 113

3.1 Cost Components

LCCA analyses the aggregate costs through the life cycle of the system or infra-
structure. In a standard LCCA, acquisition costs and sustaining costs are included at
the aggregate level (Barringer 2003 ). These costs are also termed as recurring and
non-recurring costs or fixed and variable costs. Each of these costs will have

various components of costs at the disaggregate level. Acquisition costs include
hardware and software costs. Hardware costs include mainly infrastructure, build-
ings, etc., while software costs include research and design costs, capacity building,
etc. Broadly, the cost components include not only the construction and operational
costs but also the rehabilitation and IEC (Information, Education and Communi-
cation) costs. These are capital expenditure on hardware (initial construction cost)
(CapExHrd), capital expenditure on software (CapExSoft), capital maintenance
expenditure (rehabilitation cost or CapManEx), cost of capital (CoC), direct support
costs (ExDS), indirect support costs (ExIDS), and annual operation and mainte-
nance costs (OpEx). These are broadly grouped under fixed and recurring costs

(Box 1).
While

fixed costs include source protection and construction (hardware) along
with designing and planning (software), variable or recurring costs include capital
or asset maintenance; operation and maintenance costs, CoC, direct and indirect
support costs, including training, planning and institutional pro-poor support. The
delivery of sustainable services also requires that financial systems be in place in

order to ensure that infrastructure can be renewed or replaced at the end of its
useful life and to extend delivery systems in response to increases in demand
(Reddy et al. 2009 ).
Depending on the nature of the product or service, it is likely that households,
apart from public utilities or private agencies, also invest or incur costs. These costs
could be

fixed or variable depending on the product or service. It is observed that
households often spend substantial amounts towards fixed and variable costs in

order to improve the WASH service provided by the public agencies (infrastructure,
such as wells, storage, toilets and operational costs, such as minor repairs, cleaning,
etc.). These costs are incurred in order to overcome reliability and convenience
issues related to water services. Along with these expenditures, households also
spend time fetching water and money towards buying water. These are incurred to
overcome access and quality problems. While monetary expenditure alone is
considered in the case of

financial analysis, economic analysis includes both public
and household expenditure in monetary terms and opportunity costs. On the other
hand, in case of sanitation, public and household expenditure are mutually inclu-
sive, as household expenditure is a necessity and mandatory for construction of
household toilets. Hence, both public and household expenditures need to be
analyzed together for sanitation.
Another set of costs that are important in a comprehensive life-cycle cost
analysis (green economy approach) are the costs associated with environmental
externalities. These include degradation costs of natural resources like soil, water,