Published 13th February 2006 by Constructing Excellence
There are a number of definitions for whole life cycle costing, but one currently adopted is:
the systematic consideration of all relevant costs and revenues associated with the acquisition and ownership of an asset.
Essentially whole life costing (WLC) is a means of comparing options and their associated cost and income streams over a period of time. Costs to be taken into account include both initial capital or procurement costs, opportunity costs and future costs. Only options which meet the performance requirements for the built asset should be considered – those with lower costs over the period will be preferred.
Initial costs include design, construction and installation, purchase or leasing, fees and charges.
Future costs include all operating costs, such as rent, rates, cleaning, inspection, maintenance, repair, replacements / renewals, energy and utilities use, dismantling, disposal, security and management over the life of the built asset. Loss of revenue may also need to be taken into account – for example to reflect the non-availability of the revenue-generating building during maintenance work for example.
The timing of future costs must be taken into account in the comparison of options. Future cost flows are discounted by a rate that relates present and future money values – which may include an allowance for inflationary changes.
Opportunity costs represent the cost of not having the money available for alternative investments (which would earn money) or the interest payable on loans to finance work.
There is a growing awareness that unplanned and unexpected maintenance and refurbishment costs may amount to half of all money spent on existing buildings. Estimates of the value of the unplanned portion in UK construction output range from £8 billion to £20 billion per annum.
Filed in: Business Processes