Definition and demand

The whole life cost (WLC) of an asset is defined as the present value of the total cost of that asset over its operating life (including initial capital cost, maintenance and replacement cost, energy cost and the cost or benefit of the eventual disposal of the asset at the end of its life). An asset can include buildings, plant and infrastructure.

Whole life costing techniques can be used to evaluate options at the elemental, component and total building levels. For example, during the design process, it may be appropriate to compare window-cleaning access options or alternative heating solutions. At the initial design stage, a whole life comparison of building refurbishment against demolition and new build would recognise the life-cycle efficiencies of the latter, and could be crucial to efforts to establish the correct way forward.

Examples of each of these option appraisal calculations are included in Worked examples and tables (shown under forms in the right-hand column).

Where has demand come from?

Clients are concerned with sustainability of a building and reducing costs both in construction and in ongoing maintenance. It is this demand that has generated the need for whole life costing.

Private finance initiative (PFI)

Perhaps the main driver for whole life costing currently is the private finance initiative (PFI), where the accurate prediction and control of WLC is critical to the successful performance of a PFI deal. Under PFI the tender price comprises the full cost of construction and operating the building for, typically, 25 or more years, there is therefore a clear incentive, based on competition, to reduce whole life costs by optimising capital, maintenance, replacement and energy costs. Further, there is a need to analyse maintenance and component life to assess and minimise the risk of building shut-down, which may bring severe penalties.

Value engineering

Value engineering is a key part of whole life costing. It involves carrying out structured option appraisal exercises during the design process, thus demonstrating value for money for clients. Its use is increasing, and with it the opportunity and need for whole life costing to form part of the option appraisal criteria.

Mechanical and electrical building services

The increasing capital cost significance and complexity of mechanical and electrical building services has resulted in greater cost emphasis during the early design stages. These stages are increasingly carried out by specialist quantity surveyors, granting them greater opportunity to focus on mechanical and electrical whole life costing. This is opportune, as a significant proportion of a building's costs in use are accounted for by the maintenance, energy use and replacement costs associated with mechanical and electrical installations.

Infrastructure

The UK government’s strategy and the Treasury’s Infrastructure UK reports highlighted the need for greater availability and transparency for infrastructure costs and benchmarks. It also emphasised that there should be a clearer understanding of the cost of the risk of future inflation on long-term projects and programmes.

Infrastructure generally comprises the following:

• transport (road, rail, aviation and ports);
• energy (utilities, renewable sources, nuclear);
• petrochemicals;
• oil and gas; and
• mining and resources.

Energy efficiency issues

Studies by the Building Research Establishment through the Building Research Energy Conservation Support Unit (BRECSU) 'Best Practice Programme' have found that energy consumed to heat, light and service buildings accounts for almost half of the UK's energy bill, and there is considerable scope to reduce this. The Carbon Trust publishes many reports on the energy consumption of many building types. These reports provide a breakdown of energy costs together with suggestions on making buildings more energy efficient. Recent data suggests the total energy consumption of a typical air-conditioned office is around 363kWh per m2 floor area.

There is a common feeling that property overheads are too large, with energy bills contributing significantly to the operating costs. Energy costs are potentially one of the most controllable items of overheads and WLC can be used as a tool for predicting the cost benefits that can be achieved by investment in energy efficiency. Typical investments would include:

• increasing the economic thickness of insulation;
• installing energy-efficient services;
• installing building energy management systems;
• designing intelligent buildings;
• refurbishing buildings in an energy-conscious fashion; and
• using passive cooling techniques as opposed to air-conditioned design.

It is, for example, possible to obtain light bulbs that cost £7, compared with the normal 60p, but which last longer, use less electricity and perform better. Condensing gas boilers can likewise save 10-20% of fossil fuel bills, with pay-back in 5-10 years.

It is also worth noting that oil is becoming increasingly harder to extract and that environmental concerns generally will grow in the near future. Sainsburys has become the first grocery retailer to produce an environmental report and acknowledges that energy probably accounts for its single biggest direct environmental impact. Significantly, it is also the third largest controllable cost in running a typical supermarket. Other major companies that have strong environmental programmes include Sky, who have now been a carbon neutral business for over 10 years, and M&S, who became carbon neautral in 2012.

Building sustainability

If there is to be a conscious shift of opinion towards sustainable buildings - i.e. those that have a viable life expectancy beyond their initial designed use -  there must be a simultaneous re-examination of a building's cost in use, or perhaps more correctly, costs in uses.

Buildings have not been traditionally designed for anything beyond their immediate requirements. However, as more are converted to alternative uses, it is probably only a matter of time before those with investments in property call for properties to be constructed with a view to extending these buildings' usable lives - perhaps through conversion to house an increasingly less mobile and aged population. Such considerations become increasingly valid the shorter the predicted current building life is. For example, some light industrial units for English Partnerships are designed for a 10-year life. Similarly, Hertfordshire County Council has housing and nursing homes with a 20-year life expectancy.

This concept will require building layouts and structures to be more flexible, with maintenance, re-servicing and conversion functions simplified and made more economical. A 'cost in use' study at the design stage may be able to justify larger bay sizes, raised flooring or greater storey heights, for example, in order to demonstrate continual viability for future generations.

A whole life costing study would explore the economics involved in using the building for its notional design life and for the use intended in the usual way. Supplementary investigations would then explore the potential alternative uses for the building and the conversion cost (and possibly the cost in use for a further notional period). If sufficient consideration were given at the initial design stage to the potential future uses of a building, this could be used to demonstrate the continued asset value of the property, and would go a considerable way towards minimising the number of obsolescent properties that currently dominate certain market sectors.

Data sources

The lack of data in a suitable format on maintenance, replacement and energy costs is given as a major reason why whole life costing has been rarely carried out in the past. However, published data is improving with the advent of BIM and building surveyors and facility managers will have valuable in-house data; in addition, professional judgment should not be disregarded.

BCIS have recently launched a Compnent Life Cycle Costs module that aims to improve this situation by looking at both financial costs and carbon costs of all major building components.