Benchmarking whole life costs

Levels of benchmarking

Benchmarking allows you to measure performance on a given project against a set standard, and to answer the question 'what are we aiming to achieve?'

Benchmarking can be carried out at many levels of detail, such as the ratio of capital costs to occupancy or in use costs. Typically benchmarking is carried out at more strategic levels. Two examples of this are illustrated.

Benchmarking capital and in use costs

For building types there is a balance between capital costs and in-use costs.

If the capital costs are too low, the in-use costs may turn out to be very high, putting a heavy burden on revenue and creating disruption to the function of the asset.
If the capital costs are increased there comes a time when in-use costs are not reduced or the reduction is marginal so there is no financial benefit to the building user.
By benchmarking the ratio of capital and in-use costs an optimum balance between these 2 extremes can be arrived at.

Note the figures used in this illustration are indicative and do not refer to a specific project.

Using the information in the pie chart it is a simple matter to compare the performance of the proposed project with the target for a hospital ward in this example.

The target ratios may be:

based on historic data;
established from first principles; or
defined from projected revenue for in-use costs.

The ratios between capital and in-use costs will vary from building to building for each individual project.

The actual figures arrived at will depend on component details.

Benchmarking at a more detailed level

It is very informative to look at benchmarking in more detail, particularly at the build-up of in-use costs. This allows further benchmarking targets to be established as well as providing a tool to use in value engineering.

The chart showing the break down of in-use or occupancy costs for a hypothetical hospital ward clearly indicates the significant cost elements during the year analysis.

This is helpful in a number of ways for the whole life performance practitioner.

In benchmarking terms the relative proportions of cost provide a target for the project. For example, if the proposed model showed that services were accounting for 25% of the life cycle cost, the proposed components should be checked. It may be that the particular ward is very heavily serviced in which case the high proportion of services may be justifiable.

Value engineering

In value engineering terms the relative proportions of cost indicate the areas that can be targeted to improve efficiencies or to carry out option appraisals to reduce in-use costs. In the example for the hospital ward the areas that would benefit most from cost efficiencies include:

Cleaning: it may be better value for money specifying a through-coloured floor covering that requires less frequent replacement. A ceiling tile without perforations may be specified to achieve the required acoustic performance with the added benefit of an unperforated surface (this requires less cleaning than a perforated surface).
Utilities and services are often related and together form a high proportion of in-use costs, particularly in highly serviced accommodation. Reduction of in-use costs may be achieved by more efficient plant, for example, a series of modulating condensing boilers rather than one large boiler may reduce fuel consumption. Energy efficient lighting or even Light Emitting Diode (LED) lighting may reduce electricity costs. For large scale developments using combined heat and power plant may prove to have whole life cost benefits.