Life cycle costing in FM

Planning ahead

29 April 2010

Alan Cowan reports on the use of life cycle costs in facilities management

A series of International Standards (ISOs) advising on planning the service life of buildings and constructed assets was first published in 1997. This series continues to be developed to this day, with the latest module being Part 5 of BS ISO 15686, on life cycle costing (Ref. 1). This module was supplemented, in the UK, by the guidance, Standardised Method of Life Cycle Costing for Construction Procurement (SMLCC) (Ref. 2). Published in 2008, it focuses on standard methodology in collecting financial data.

What is life cycle costing (LCC)?

The new standard, which was developed in consultation with 17 countries, is expected to have a major influence on all future construction procurement. The SMLCC expected to have an impact on the design of buildings through a client's aim to set the right budgets and optimise LCC from a whole-life value and sustainable development perspective.

The ISO defines LCC as 'the cost of an asset throughout its life cycle while fulfilling the performance requirements'. LCC is a very simple concept as it basically determines future costs.

It can, though, be quite a complex calculation as there are potentially a huge amount of costs to consider. It is also complicated by introducing timescales into the equation and, therefore, methods in treating current value and future costs.

Who uses this standard?

Users include procurers of constructed assets with an interest in long-term ownership. These may be public or private, or lessees with a reasonably long period of interest in the property and/or responsibility for maintenance and/or operational costs. It is also aimed at designers, contractors and suppliers of materials and components. The standard can also be used by facilities operators and managers, cost consultants and other specialists.

Part 5 of ISO is particularly relevant to the environmental and sustainable performance of alternative options. In a commercial environment, the standard's main use is to collect data on existing buildings in a standard format. This will make it easier to make comparisons across a property portfolio to assess the possible future costs of running an existing property or estate.


Developed in consultation with 17 countries, the new standard is expected to have a major impact on all future construction procurement

LCC is relevant at the following levels: portfolio/estate management, constructed asset and facilities management - primarily to facilitate decision making and for comparing alternatives. It allows consistent comparisons between alternatives with different cash flows and timeframes. The analysis takes into account relevant factors from throughout the service life, with regard to the client's specified brief and the project-specific service life performance requirements.

The UK government highlighted that all future major public sector construction procurement must be based on whole life value for money. Although not compulsory for the private sector, it should prove to be financially worthwhile for commercial organisations to use the same principles.

The SMLCC structure

The standardised method looks at the whole life cost for any constructed asset and splits the periods and costs into clearly defined phases and elements. Figure 1 illustrates those phases.

Figure 1: Whole life costing phases

Within the maintenance and operation elements there are many sub-elements, which are all defined in the SMLCC. These are summarised as follows.

The data structure of the SMLCC also requires that costs for major replacement, subsequent refurbishment and redecoration, are presented in the BCIS Standard Form of Cost Analysis (Ref. 3) element and sub-element cost structure categories. Additionally, costs for elements 2.4, 2.5 and 2.6 could also be presented in BCIS elements. See Figure 2.

2.0  Maintenance costs 3.0 Operation costs
2.1 Major replacement costs 3.1 Cleaning costs
2.2 Subsequent refurbishment and adaptation costs 3.2 Utilities costs
2.3 Redecorations 3.3 Administrative costs
2.4 Minor replacement, repairs and maintenance costs 3.4 Overhead costs
2.5 Unscheduled replacement, repairs and maintenance 3.5 Taxes (if applicable)
2.6 Grounds maintenance 3.6 Client definable costs
2.7 Client definable costs

Figure 2: Cost structure categories

There are many sub-elements for the category 'occupancy costs', although these are not presented. Operating costs relate to work that results from the building, and occupancy costs relate to work which affects the occupants, and this highlights the difference between them. It is not quite the same differentiation as found in the frequently used terms 'soft' and 'hard facilities management', as cleaning is included in operation costs because the choice of a finish can dictate its cleaning regime.

It appears that LCC is no longer an afterthought. The plan needs to develop alongside the capital cost plan, from £/m2 costs through elemental cost plans to fully worked-up cost plans, based on proposed design alternatives.

Use of LCC in commercial properties

There are several reasons for any business to carry out a life cycle costing exercise. As part of a business case evaluation, it helps to determine whether you can afford to build and maintain the building. It was the failure to address the area of maintenance that led to the decline in the public estate in the 1970s and 1980s. Also, applying the LCC exercise as part of an option appraisal exercise helps to decide on the most economically advantageous solution over the life of a building. It is also key as part of the cost-planning process to control the design development within the running cost, as well as the capital cost budget. The LCC also helps to provide a set of instructions and a budget for the facilities manager.

One of the key decisions made is the period of analysis - the length of time it takes for a life cycle cost exercise to be carried out. It is typically determined by the client's investment horizon. In some retail schemes this can be a very short period, but not necessarily so for social housing - the Housing Corporation requested a 100-year projection.

Benefits of using LCC


There are advantages and disadvantages in using LCC. Among the benefits are stabilising of running costs, which it achieves through accurate cost planning

The visible costs of any product it seems often represent only a small proportion of the total cost of ownership, with this same principle applying equally to buildings as to domestic appliances.

There are advantages and disadvantages in using LCC. Among the benefits are the stabilising of running costs which it achieves through accurate cost planning. It is also useful as a tool for comparing options and saving costs in the long term. Disadvantages include it sometimes being time consuming and that the availability of accurate long-term cost data can be inadequate.

One of the common pitfalls of using LCC is that in many organisations the responsibility for purchasing is separate from supporting and maintaining a product or building. Consequently, there is little or no incentive to apply the principles of LCC to purchasing policy. Therefore, it is imperative that high-level management is involved, otherwise the purchaser is unlikely to apply the rigours of LCC unless they see the benefits.

There is little data available regarding the level of usage of LCC principles, although with government demanding its use for public sector projects, there is little doubt that its use will increase in the commercial property sector. It is also likely that by introducing standard methodology for the collection and presentation of data, LCC makes it easier for the private sector to collect and compare financial data - from more than one source.

The present buzz-word in construction is 'sustainability'. It is having a major impact on all future construction procurement as clients focus more on setting accurate budgets, which help optimise their life cycle costs from both a whole life value and sustainable development perspective. To implement sustainability in their buildings, clients need to know the total cost of their investment in the building, rather than just its initial cost.

Data sources

For many years, BCIS has collected maintenance and operation costs. The results of its studies were incorporated into BCIS Building Running Costs Online, with running costs defined as the total of maintenance and operation costs. This subscription service enables the user to select a building type and size and, through the use of BCIS data, to prepare estimates of capital, maintenance and operation costs. These calculations can be made over a range of timescales, and can be on a current, discounted or present value basis.

Alan Cowan, BCIS Technical Consultant, Royal Institution of Chartered Surveyors

Further information