Whole-life costs are critical when deciding upon location for a particular project. Firms seeking to identify the most cost-efficient location for the siting of a manufacturing plant must understand not only the costs of constructing the facility in the first instance, but also the cost of ownership throughout the period the facility is required. The evaluation of alternatives is at the heart of whole-life costing: by considering the options available, the best-value strategy for building and operating a facility can be identified.
The period of ownership will cause significant changes to its whole-life cost. Therefore, when considering where to locate a facility, it is important to consider how long the facility will be required. Owning a property in a colder climate will result in significantly higher energy costs, for example, than will apply in a Mediterranean climate.
Construction costs
The construction cost figures are based on the construction of a manufacturing plant. The figures would normally include land acquisition costs, capital allowances, finance costs and taxes – all of which vary from location to location. However, for the purposes of this simplified study, these costs have been excluded.
The tables are compiled using figures based on the cost of a theoretical project. In a full study, the specific regulations applicable within each country would be applied. However, this study has assumed a generic building across Europe and does not therefore take into account these influences.
Occupancy costs
Energy usage and maintenance are two of the key cost drivers in ownership costs. In order to understand these costs, it is important to record the circumstances under which they have arisen: if a property is under-used, with low staff numbers, energy costs may be lower than is normal for full occupation. Poor quality administration and policy can result in the infrequent application of maintenance, increasing overall maintenance costs. The costs shown in the attached tables assume a common application of administration of maintenance and assume normal occupancy usage of energy.
Labour costs and productivity
The cost and performance of labour is a significant component of the occupancy figure. The impact of labour on certain activities is more heavily felt than on others: for example, cleaning, redecorating, porterage and security costs will reflect labour costs and productivity to a far greater extent than energy costs.
The labour performance factor table (right) illustrates productivity across Europe. The figures were compiled from an analysis of three independent, in-depth studies of labour-intensive activity across Europe, taking into account a broad spread of factors such as working environment, climate, skills, applied training, and so on. The average figures from all three studies were applied here.
The figures give labour performance relative to the UK, which has a factor of 1.00. The table shows that only German labour is more productive than UK – with a value of less than 1.00 – but countries such as Spain, with a factor of 1.32, are almost a third less productive.
Interestingly, the table appears to show a correlation between the temperature range and productivity: those countries with a greater temperature range, such as Finland, Austria and Spain, have a poorer factor than countries such as the UK, Germany and France. However, the amount of rainfall appears to have little impact on labour performance figures.
The labour performance factor when read in conjunction with the average salary gives an indication of which countries are most economic for labour-intensive activity.
Time and usage factors
For all countries, the cost of occupancy over the lifetime of a building is far greater than the initial cost of construction. For a company that is trying to decide between Spain and the UK as a location for a manufacturing plant, the figures show that the building will have a lower capital cost in Spain. However, once the cost of occupancy is included for the building over its 25-year investment period, the UK becomes a more viable option.
The period of ownership becomes a critical factor in the evaluation of alternative locations.
The type of building and its use will obviously affect these figures. Large warehouses with few occupants and low-energy needs may well be more viable in Spain than the UK. For an office building with high service needs and energy usage, the preferred location might be … well, you decide.
