Whole-life guidance

There is a growing awareness that unplanned and unexpected maintenance and refurbishment costs may amount to half of all money spent on existing buildings, according to the Building Research Establishment.

Estimates of the value of the unplanned portion in UK construction output range from £8bn to a staggering £20bn a year. This is why whole-life costing (WLC) is beginning to play a crucial role in project management. How does WLC fit into the whole-life value (WLV) concept and what are its benefits?

Key principles

The whole-life costs of a facility are the costs of acquiring it plus maintenance costs over its lifespan through to its disposal. WLC involves identifying all the costs associated with various options in order to make informed choices about which investment will deliver best value. Future costs are brought to a comparable basis through the use of discounted cash flow – often measured as a Net Present Value at a defined base.

WLC does not mean awarding contracts on the basis of lowest capital costs – it should rather follow the principle that money spent

on good design can be saved many times over throughout its life.

The barriers to achieving WLV

Even though the construction industry now widely acknowledges the benefits of WLC, barriers to successfully achieving WLV still exist. The NAO identifies four main barriers to achieving best value procurement:

• Lack of understanding of what WLV is.
• Lack of suitable tools for clients to evaluate the options and understand the relationship between costs and quality and other value drivers.
• Lack of robust historical data on use and maintenance or life cycle running costs.
• Lack of tangible benefits of adopting WLV.

Overcoming the problems

1. Clarify the definitions

It is important to know the difference between WLC and life cycle costing, and when each of these should be applied during a typical project life cycle. While WLC is used to identify the best value investment option, life cycle costing is used to optimise the design development from a through-life perspective, to select the best value specification choice.

2. What costs should be considered?

Having an accepted standard form of whole-life cost breakdown is essential. It will ensure all the appropriate costs and income are considered when comparing WLC options

and doing life cycle cost optimisation studies.

The RICS is currently working with Faithful & Gould to produce a standard whole-life cost data structure.

3. Present the decision makers with understandable outcomes

Using a balance scorecard shows how cost versus quality and other value drivers compare. Setting WLV targets can make it easy for decision makers to understand the outcomes, which helps to identify the best value option.

4. Identify the tangible benefits, to unlock

the value of thinking ‘whole life’

Adopting the guiding principles can overcome the barriers and realise major benefits.

These benefits will always vary from project to project, but recent examples include:

• Housing association Home Group selected component suppliers that were able to balance its technical and environmental criteria with practical issues, such as the supply of spare parts, helpfulness of technical staff and so on. Putting a price on these other valuable aspects of the service, taking them into account on a ‘level playing field’, was the tangible benefit.
• An options appraisal for a new PFI school development: the education authority was able to identify which options were non-viable early on, saving time, effort and abortive fees working up unaffordable solutions. In this way, the client could focus on which aspects of preferred solutions were essential and which could be cut.