Whole Life Costing / LCC

By

Ch. QS. Saranga Weerawardhana (B.Sc.(QS- UOM), M.Sc. (Pro. Mgt)

 Whole Life Costing
Alternative terms – Life cycle costing
(LCC)/through-life-costing/Costs-in-use/Total-life-
costing/total-cost-of-ownership
Clients are responsible for the project’s costs in use
Historically, building designs aimed at minimizing
initial construction costs alone
During 1930s building users realized that the
running costs of buildings impacts significantly on
the occupiers’ budget (Dale, 1993)
Present day clients are concerned about 3R’s –
Running, Repairs, & Replacement costs
Cont’d………..
Energy –Saving measures within the design in
order to reduce future fuel costs is now common

Whole life costs are substantially greater than

capital/initial costs
Example:
Operational expenditure will be 5-10 times
higher than capital cost
For a typical office building, over 30 year period,
the ratio is 1:5 (Evans, et al., 1998)
Another study, the ratio is 1:10 (Kernohan, 1996)
Cont’d………..
 Importance of maintenance &
operational costs
Building Type Cost Rs./100m2 (per % of total costs
annum)

Factory Cleaning 750 21%

Utilities 750 21%

Administrative costs 1,000 28%

Services Maintenance 500 14%

Fabric Maintenance 400 11%

Decorations 150 4%
Cont’d………..
Building Type Cost Rs./100m2 (per % of total
annum) costs

Office (air Cleaning 1,200 13%

conditioned)

Utilities 2,050 22%

Administrative costs 3,050 33%

Services Maintenance 1,750 19%

Fabric Maintenance 900 10%

Decorations 250 3%
 Cont’d………..
Building Type Cost Rs./100m2 (per % of total
annum) costs

Hospitals - Cleaning 2,900 36%

General and acute Utilities 1,050 13%

Administrative costs 1,500 18%

Services Maintenance 1,350 17%

Fabric Maintenance 1,000 12%

Decorations 250 3%
 Employee Benefits
Hospital Expenses
Professional Fees
6% Medical Supplies
8%
3% Drugs &
Pharmaceuticals
5% Food

4% Fuel & Utilities

50%
6% Contracted
Services
Capital Expenses
7%
Other Expences
5% 6%
Wages & Salaries
Source: Kirk & Dell’isola (1995)
LCC of Local Authority School
Capital Cost

Replacement &
Maintenance
10%
Routine Service

43% Rates & Sewage

28%
Cleaning & Care
Taking
7% 3% 9% Fuel

Source: Flanagon & Norman (1983)

 LCC of A/C System (15 yrs)
ICTAD Bldg

1%
27% Design
Plant
51% Installation
12% Maintenance
Energy
9%

Source: Zainudeen (1992)

Definition
“Economic assessment considering all
agreed projected significant and relevant
cost flows over a period of analysis
expressed in monetary value.

The projected costs are those needed to

achieve defined levels of performance,
including reliability, safety and
availability”
 Cont’d………..
“ The systematic consideration of all relevant
costs and revenues associated with the
ownership of an asset”

The systematic consideration of all relevant

costs and revenues associated with the
acquisition, use and maintenance and
disposal of an asset”
 Cont’d………..
 Whole life costing is represented as a
“Management tool”, assist in decisions
making between different options with
different cash flows over a period of
time

 It is a form of investment analysis

Use of Whole life costing
As a decision making tool
Make effective choice between a number of
competing project alternatives.
Comparing alternative investment
scenarios
- Retain/refurbish or Sell
- Alternative designs (Framed/Load bearing
structures)
- Alternative specifications (Timber / metal
windows)
 Cont’d………..
As a Management tool
 Considering whole estates, whole
facilities, individual buildings or
structures
 Identify the actual costs incurred in
operating assets

 Torelate the running costs and

performance data
 Benefits of Whole Life Costing

 Encouraging analysis of business needs

and communication of these to the project
team
 Optimizing the total cost of
ownership/occupation by balancing
initial capital and running costs
 Ensuring risk and cost analysis of loss of
functional performance due to failure or
inadequate maintenance occurs
 Cont’d……
 Promoting realistic budgeting for
operation, maintenance and repair

 Encouragingdiscussion and recording

about the durability of materials and
components at the outset of the project

 Providingdata on actual performance

and operation compared with predicted
performance for use in future planning
and benchmarking
 Whole Life Phases
Specification

Replacement

Design
Modification

Maintenance

Commissioning Installation
Implementation of WLC in the
industry
 Theoreticallydeveloped but practical is not yet
widely applied – “the dog that didn’t bark”

 Extensively used only in private finance initiatives

PFI projects and public procurement

 Reasons are industry practices, the client, and the

analyst and the analysis tools currently used in
WLC
 Industry practices …….
 Normal practice to accept the cheapest initial cost
and to handover the building to others to
maintain

 No clear definition of the buyer, seller, and their

responsibilities towards the operating and
maintenance costs

 there is lack of motivation in cost optimization

because the design and cost estimating fees are
usually a percentage of the total project cost
Cont’d…………….
 This is overcome with expansion of new project
delivery system such as PFI and build, operate
ad transfer (BOT)

 Lack of understanding on the part of the client

 Difficulty of obtaining proper level of

information upon which to base a WLC analysis
 Lack of appropriate, relevant and reliable
historical information and data
 Time needed for data collection and the analysis
process – inadequate time for the discussion
with the decision maker and the re-run of
alternative options
Elements of LCC
 Basic steps in WLC
 Identify capital and operational costs
and incomes
 Identify when they are likely to occur
 Use “discounted cash flow” analysis to
bring the costs back to a common basis
 Sensitivity analysis of the variables such
as the discount rate, predicted design
lives of components, assumptions about
running costs etc
 Time Value of Money
 Sum of money in hand is worth more than
the same sum at a later date
 Present value vs. Future value
 Cost/opportunity cost of money
 Inflation

 Discount Rate i = {(1+r) / (1+g)} – 1

 Market rate  i = Real rate of interest
 Real rate  r = Market rate of interest
 g= Rate of inflation
 Project Life
 Physical obsolescence
 Economic obsolescence
 Functional obsolescence
 Technological obsolescence
 Social obsolescence
 Legal obsolescence
Cont’d…………
 Physical obsolescence
 Structural
stability
 Demolition
 Repair & renovations

 Economic obsolescence
 Costof repair & renovation
 Land value worth more for potential
development
 Cont’d…………

 Functional obsolescence
 Cease to function for the original purpose
 Refurbishment

 Technological obsolescence
 Change of technology
 Cont’d…………

 Social obsolescence
 Changing living standard
 Changing culture

 Legal obsolescence
 Laws/regulations / standards
 Compulsory purchases
 Components of LCC
 Life cycle cost planning (LCCP)
 Life cycle cost analysis (LCCA)
 Life cycle cost management (LCCM)

 Life cycle cost planning:

 Using LCCA / Forecasts
 Evaluation of alternatives
 Long term plan for total project
 Short term plans for elements/components
 Life cycle cost analysis:
 Collectionand analysis of historical data
 Does not involve discounting
 Forms the base for LCCM

 Types of Data
 Cost data
 Physical data

 Qualitative data

 Performance data
 Cost Data

Security
Rates
costs

Fuel
bills Management
costs

Maintenance Cleaning
bills costs
 Physical Data

Floor Ceiling
areas areas

Wall
areas A/c capacity

Opening Functional
areas areas
 Qualitative Data

Condition of
Condition of sanitary fittings &
M & E services pipe work

Condition of Condition
finishes of fabric
 Performance Data

Maintenance
Occupancy cycles
times

Plant
efficiency Temperature
levels
 Life cycle cost management:
 Formulating an appropriate maintenance
policy
 Controlling occupancy costs
 Seeking more efficient use of facility

 Life cycle cost planning:

 Using LCCA / Forecasts
 Evaluation of alternatives
 Long term plan for total project
 Short term plans for elements/components
 Limitations
 Assessingproject life
 Accuracy of data
 Market conditions
 Inflation
 Interest rates
 New technology/material
 Price levels & taxes
 rates & taxes
 Limitations - continued
 Maintenance management
 Quality of workmanship
 Client awareness

Remedies
 Risk analysis
 Sensitivity analysis