Life-Cycle Cost Analysis of Infrastructure Projects - Governing the Nexus: Water, Soil and Waste Resources Considering Global Change - page 116

where
LCC xt ed product/service

CapExhw xt Capital expenditure on hardware (initial construction cost)
CapExsw xt Capital expenditure on software
CapManEx xt Capital management expenditure (rehabilitation cost)
CoCap xt Cost of capital
DsCost xt Direct support costs
IDsCost xt Indirect support costs
OpEx xt Annual operation and maintenance cost
CoEExt xt Cost of environmental externalities
x represents product or service and

Life cycle costs of speci

represents year.
These costs are essential to carry out project appraisals that deal with environ-
mental as well as social sustainability (service delivery) in the short to medium run
at least. However, some of these costs are dif

' t '

cult to quantify, especially the costs
of environmental externalities. All the costs need to be standardized by annualizing
the costs. Some of these costs like OpEx are incurred annually while others need to
be annualized. And these investments, past or future, need to arrive at the present
value of these investments in order to make the investments comparable across the
schemes. Accordingly, Eq. 1 can be written as:

(

f X

n

LCC xt ¼

1 pvf xt CapExhw xt ; CapExsw xt ; CapManEx xt ; CoCap xt ;

ð

ð 2 Þ

t ¼

DsCost xt ; IDsCost xt ; OpEx xt Þ CoEExt xt g

where
pvf

present value factor (1 + r ) t

r rate of interest or inflator

t time period

Rate of inflation or the prevailing rate of interest may be appropriate for esti-
mating the present value or worth. Other alternatives include effective interest rate
(rate of interest-inflation), national GDP inflator, etc., could also be used. Once the
whole life costs are estimated, unit costs and annualized costs can be worked out.

3.4 Risk-Based Life Cycle Cost Analysis and Simulations

While normative lifespan of different systems may not vary much, the actual life-
span varies due to risk and uncertainties associated with natural factors and
unexpected climate events. The risk and uncertainty are often high in the case of
products and services associated with natural resources. The risk factor can be
modelled using probabilistic phenomena. That is by estimating the probability of