Whole Life Costing

Whole life costing is a costing method which is used to evaluate the overall cost of different construction options. It takes into account the lifespan of a building or component and any maintenance costs which may be required to achieve this. Whole life costing also considers the depreciation of money over time and uses the key principle that £1,000 in a year will be worth less than it is today. Using this method, companies can accurately predict the overall cost of each construction option and therefore make an informed decision as to which method to adopt. Whole life costing has increased in popularity after the increase in running costs of buildings, therefore giving incentives for developers to seek alternative construction methods which aren’t necessarily just the cheapest in initial capital outlay.

Sustainability is an increasingly crucial part of whole life costing as it has potential to extend whole life of components of construction. Furthermore, it is now generating the availability for aspects to generate a profit over their life cycle and not just a cost. For example, solar panels have a high initial outlay, but over their life they have the potential to make the developer a profit if they are to sell the energy yield on to others.

One key consideration for developers, with relation to whole life costing, is often which individual will benefit from an increased initial outlay. Often whole life costing is mentioned in relation to more sustainable forms of energy and development. For example, heat recovery systems are often compared to other forms of ventilation. For the developer, a heat recovery system is going to result in a much greater initial outlay. However, when looking at the whole life cost, the savings made from a reduction in energy bills will far outweigh that cost. When considering the lifecycle of that system and building, it is likely that it could in fact make a profit if installed.

Furthermore, there are many costs to consider when evaluation a life cost of an item. You must consider the following:

1 – Initial Costs:

·         Design

·         Procurement

·         Construction

2 – Future Costs:

·         Alteration

·         Demolition

·         Recycling

3 – Future Costs (In Use):

·         Running

·         Repairs

·         Replacement

4 – Inflations:

·         The time value of money

Within our development, we have incorporated many elements which will bring the whole life cost of the development to a minimum. Building to a higher standard, in relation to some materials and elements will enable to overall running cost of the buildings to be significantly reduced. Some key components include:

·         PV Panel Installation: This is required to meet new German building regulations, however we have optimised this with the location on south-facing elevations. We have allowed this for areas greater than the 30% regulation in order to optimise the power yield from the site. These will then be connected to batteries where power for the buildings can be stored and delivered back to each of the units.

·         Heat Recovery Unit (HRU): This will be used for the colder months of the year and will enable a reduction in energy bills through the recycling of heat when supply and extract ductwork pass by each other in close proximity. This will reduce energy costs considerably and assist the maintenance and running of the developments.

·         Rain Water Harvesting: Rain water will be harvested in order to minimise bills associated with water supply to the development. These systems will enable to collection and storage of rainwater throughout the year, ensuring that costs for water supply can be kept to a minimum.

The running cost is often far greater than the purchase / development cost for new projects, such as the Pariser Kommune development. Research has shown that running costs of office buildings can even be as much as 200 times greater than the initial purchase cost. It is important to therefore to take all these elements into consideration when making procurement decisions. Whole life costing should be applied at a strategic level to assess different options as part of an options appraisal exercise. It should also be used to compare the costs of buying, renting, or leasing an item of equipment. It is important that non-financial factors are also considered when making a procurement decision, for example, do the goods/services meet the users' technical specification, do they have the qualitative standards that are expected and required, and is the proposed decision sustainable. As sustainability is also identified as a key factor in the client and development area’s demands, we have incorporated these within our development proposal.