The cost of living
CIRIA's Dr Das Mootanah explains the importance of taking life cycle costs into account
Making any major investment decision is like buying a house. Prospective purchasers are not only interested in the cost. They want to know how much it will cost to run and its likely resale value.
What they are actually doing is a whole life costing. When they compare the pros and cons of one house versus another, they will make a decision based on whole life value.What is whole life value?
The WLV of an asset is one step beyond WLC and represents the optimum balance of stakeholders' aspirations, needs and requirements, and the costs over the asset's life. WLV encompasses economic, social and environmental aspects associated with design, construction, operation, decommissioning, and where appropriate, the re-use of the asset or its constituent materials at the end of its useful life.
Using WLV enables decision-makers to identify the investment option that best meets the requirements (often conflicting) of a range of stakeholders effectively and efficiently. Procurement in the public and private sector is increasingly being undertaken on the basis of WLV.
There are various drivers for this shift from cost to value, some are mandatory (mainly public sector and affecting suppliers) and some have come about as clients are recognising the benefits that can be achieved by taking a whole life, sustainable approach to construction. Indeed, a recent National Audit Office report (Improving Public Services through Better Construction, 15 March 2005) states that there is a wide recognition of the need to base procurement decisions on value for money.The key benefits of adopting a WLV approach are:
So, what next?
To realise the benefits of the WLV approach requires a framework for structuring and co-ordinating the decisions and choices to be made when investing for the long term. The ultimate success of any investment decision will depend on how well decision-makers take account of not just construction costs, but the total life cycle costs; and how well stakeholder requirements are addressed.
To better inform investment decisions, there is a real need to advance the application of tools and techniques that enable the achievement of WLV, in both public and private sector procurement, by:
WLV therefore extends the scope of the appraisal process by focusing on more than just the costs associated with commissioning and operation of an asset and helps decision-makers to consider all the competing factors that drive value.
Guidance developed collaboratively by CIRIA, BRE, TRL, ICE and Faithful & Gould provides an understanding of the concepts and principles underlying WLV. Issues such as whole life costing, risk and value, and sustainability are increasingly being tackled from the earliest stages of project procurement. This often entails consulting with stakeholders, who have differing priorities and objectives to bring about benefits to business and a wide range of stakeholders.