Definition and demand

What is life cycle costing?

Life cycle costing (LCC) is a decision-making technique that takes into account both initial and future costs over the life of a building. For buildings and structures this usually means considering not just capital costs but relevant costs in use or operational costs.

Life cycle costing considers construction costs and ongoing costs in use.

Construction costs are:

  • planning;
  • design; and
  • construction.

Costs in use include:

  • maintenance;
  • refurbishment;
  • operational;
  • occupancy; and
  • end of life costs.

Typically, LCC is considered as part of the whole life costing. Whole life costing includes life cycle costing but also encompasses a wide range of costs including non-construction costs such as incomes, business costs, acquisition and planning as well as external costs.

Detailed guidance on LCC is available in ISO 15685–5 and the UK Standardised Method of Life Cycle Costing for Construction Procurement.

History

Life cycle costing has its origins in the 1960s when the US defence industry developed models to manage procurement of equipment with ownership costs which might be 10 to 100 times that of the acquisition costs. These principles and methods are increasingly being applied to buildings and other constructed assets.

Use

The main drivers for life cycle costing and whole life costing in the UK come from the government to demonstrate value for money and promote sustainability. Both the Latham and Egan reports recommended whole life costing as part of the procurement process. The Office of Government Commerce defines value for money as:

‘the optimum combination of whole life cost and quality to meet the user’s requirement.’

Whole life costing is an integral part of projects procured through PFI and PPP routes. A building with low whole life costs would tend to demonstrate a more sustainable option.

There are many uses of LCC; the outcomes can provide information for financial and asset management, investment appraisal or comparing alternatives.

A life cycle cost plan can be carried out at any stage, and for either a new or existing project or asset. The cost data obtained in the preparation of the plan can be used to establish maintenance budgets, sinking funds and service charges.