Whole-life cost is a critical factor when a client is planning for a new building. Clients and representatives of clients (consultant or planning team) should analyze the whole life cycle cost of a building at the very initial stage of the planning. This(Whole life cost analysis) should produce along with the feasibility report of the building.
Relationship between whole life cost and life cycle cost
In order to understand the relationship between WLC and life cycle cost below are the industry definitions,
- Life cycle cost (LCC) is ‘cost of an asset, or its parts throughout its life cycle, while fulfilling the performance requirements’. (BS ISO 15685-5, 188.8.131.52)
- Whole life cost (WLC) is ‘all significant and relevant initial and future costs and benefits of an asset, throughout its life cycle, while fulfilling the performance requirements’. (BS ISO 15685-5, 184.108.40.206)
- Life cycle costing is ‘methodology for the systematic economic evaluation of life cycle costs over a period of analysis, as defined in the agreed scope’. (BS ISO 15685-5, 220.127.116.11)
- Whole life costing is ‘methodology for the systematic economic consideration of all whole life costs and benefits over a period of analysis, as defined in the agreed scope’. (BS ISO 15685-5, 18.104.22.168)
with respect to the above definitions below diagram shows the clear relationship between WLC and LCC.
Before moving into the importance of whole life cost analysis of a building, we will elaborate what the different stages of the whole life cycle costs of a building are,
Whole life cycle of a building
In a life span of a project or asset, From start to end, Owners have so many expenditures, Total of these expenditures called as whole-life cost. The whole life cycle cost of a building shown in below diagram,
Planning and design stage
There are so many expenses involved in the planning and design stage of a building. The main expenditure may be design costs. Design consultants fees, planning engineers fees can be categorized under design cost. Tendering and cost consultant’s costs are also arise at the planning and design stage. If the client wants to buy a land or develop the land according to the design, That cost will occur at the same planning and design stage.
Construction and acquisition stage
A significant percentage of the whole life cycle will spend at this stage. Mostly for construction works. Apart from that, project consultant fees and supplier’s costs will arise at this stage, and final testing and inspection fees will add up to it. These are the most popular expenditures that a client is going to pay at this stage. There might be advertising and marketing fees that clients are paying at this stage (to advertise the final project). Also based on the fiscal rules clients may pay various types of taxes.
Operation & maintenance stage
The operation period is the lengthiest period of the building life span. Owners will spend a tremendous amount of money at this stage for various reasons. Mostly as facility management fees and services fees. Regular maintenance, miscellaneous other unexpected maintenance expenses will come up at this stage.
Renewal and rehabilitation stage
At the later stage of the project, it will require to renew or rehabilitate. Owners might want to restore it entirely or partly rehabilitate. To do that client may want to asses the current status of the building, apart from the construction cost of rehabilitation. A consultant fee will require to pay for the assessment report and redesign of the project. Apart from these expenses, the top portion will pay for the rehabilitation or renewal process of the building.
Replacement or disposal stage
Most clients will not anticipate that replacement or disposal cost at the planning stage. Or otherwise, the client’s estimate for the disposal of the building will not be sufficient. So what covers in this disposal cost is vital? Mainly client will spend on demolishing and disposal of structural parts of the building. Some elements may need special attention at the disposal stage. Asbestos is such a kind of item, which should dispose of without harming nature and society. Apart from that service disconnections, the dismantling of metal structures is other costs that occurred at this stage.
Analyzing of each above stage is call as whole life cost analysis. The client can optimize the design based on the findings of whole life cost analysis to maximize the project outcome or performance based on the available budget.
Importance of whole life cost analysis
Below are the importance of analysis,
- The client can adjust the building costs and running costs.
- Owners can understand possible risks and opportunities.
- Disclose future maintenance and operation costs so that the owners can plan cash flow.
- Will Give a better understanding of the spending and income of the project.
Whole-life cost analysis is vital information that a client should have before commencing a project. So the client can identify all the related costs at each stage. And they can optimize the design based on the client’s requirements.
Whole-life cost analysis example
As an example- A client wants to build a residential building. Whole-life cost analysis gives all costs at each stage. Based on these findings, the client can understand when exactly initial capital is going to recover and when the investment is going to make profits. So based on these findings and expected, unexpected future expenses, the client can decide the selling value or leasing value of an apartment. And by optimizing the design based on whole life cost analysis clients can increase or decrease the selling value or leasing value of an apartment.
See below for more clarity,
- The aim of the comparison is to provide an option that gives the best value for money taking into account both initial and user costs.
- The comparison is made on short term (initial) cost and long term (running) costs.
- Even with considerably lower running costs, option A is far more expensive than option B due to its larger initial cost.
- Option B has larger running costs but with a low initial cost, it is more economically viable for the developer who finds it.
- difficult to raise initial capital and who does not mind higher user costs.
- If the client’s main concern is lower future running costs, Option A is more suitable for him.
*****Above example is taken from a sheet we found on the internet and the owner of this sheet is unknown to us.
In the above example NPV= Net present value & PV= Present Value, These terms we have discussed in our previous article- Project cash flow- Construction cost management