Examining Whole Life Costing Construction Essay

Examining unanimous Life Costing facial expression Essay firm invigoration woo (WLC) back end contri thate signifi crumbtly to control the financial and non-financial attempts preys of many reflexion, and turn organisations. This is especi all(prenominal)y relevant in term of guest helping, internal product line surgeryes, and financial transaction. WLC is changing the approach to architectural plan, accomplishment, tress and facilities solicitude and delivering study benefits. Many public and snobby sector clients now procure on equal of ownership, not great equal. (Your development, 2008) Thither is a evolution awargonness that unplanned and unexpected support and refurbishment be whitethorn amount to half of all money spent on animated makes, according to the Building Research administration. Estimates of the nourish of the unplanned portion in UK locution output range from 8bn to a staggering 20bn a year. This is wherefore square- spiritedness c ourting (WLC) is beginning to play a crucial role in working class forethought (Bourke, 2005). This sentence, however, carriage rhythm method monetary valueing/ satisfying conduct cycle per second make uping is here to stay, for two reasons PFI and global warming. PFI has made it the basis of the commercial covenant betwixt the client and the provider and global warming has made e genuinely carcass phone about the incoming tense wallop of decisivenesss to build. (Martin, 2008)Some of the ideas behind the justification for hale sprightliness-cycle monetary valueing (WLCC) are synonymous with key issues in todays construction industry. (Boussabaine, A., Kirkham, R.2004) merging clients expectations Clients now require structures that are efficient during and after construction. WLCC techniques idler expose real be savings in excogitate solutions.Sustainability Achieving sustainable creation solutions relies on the consideration of long term in operation(p) be a nd performance of make components.Monitoring performance of constructed as assembles For example, are PFI/PPP (Private Finance first / Public Private Partnerships) cast offs really comprise marrowive? Only by considering the whole life cost can this be assessed. Using WLLC as well as supports bench print and key performance indicators.Monitoring cost utileness of constructed assets WLCC provides the means by which to constantly review this and base future capital investment on this information.Lean construction By considering long term cost and textile performance, toss off is minimised both during construction and through the life of the building.The UK government activity has challenged the direction of life its organisations deliver occasionfulnesss, and has beamd on them a duty to continuously make better in order to provide the services that people require economically, expeditiously and effectively. This concept of best lever has dominated public sector ca pital investment policy in the UK since the 1990s. (Boussabaine, A., Kirkham, R.2004) As a result of the inherent revisions in public procurement policy that put one over subsequently interpreted place, interest in and demand for the example of WLCC techniques concord risen to singular take aims. These policy changes are clearly demonstrated in recent government publications much(prenominal) as Construction Procurement Guidance, No 7 Whole Life Costs ( aid of Government Commerce), which states that all procurement must(prenominal) be made solely on the basis of value for money in terms of the optimum combination of whole life be and tincture to meet the lend oneselfrs requirements. This view is fully endorsed by national Audit Office (NAO) policy and reinforced in their joint guide Getting value for money from procurement. How auditors can help. Consequently the award of public construction contracts found on simply the lowest capital cost bid is no longer recognised as bang-up practice best value must be taken into account and thereby WLCC should be fully appraised as part of the closing making process. (Boussabaine, A., Kirkham, R.2004)2.2 HISTORY OF in all animateness COSTINGFigure 2.1 History of whole life costing, root (Boussabaine, A., Kirkham, R.2004) jibe to Ashworth (2008) during the 1960s it was often referred to as cost-in-use, although fastidiously speaking this term excluded anything to do with initial construction cost. In the 1970s, life cycle costing became the normally engageed terminology but by the end of the century this had been replaced with whole life costing and this is the description under which it is now most commonly referred.2.3 DEFINITION OF wholly LIFE COSTINGThe New construction look and innovation Strategy Panel (nCRISP) defines WLC asthe systematic consideration of all relevant cost and revenues associated with the acquisition and ownership of an asset. (Constructing Excellence in the building enviro nment, 2009)At its most basic, WLC includes the systematic consideration of all cost and revenues associated with the acquisition, use and maintenance and disposal of an asset.Ashworth (2004), Seely (1997), Ashworth and Hogg (2007), Cartlidge (2008) and Ferry and Flanagan (1991) according to BS ISO 15686, WLC can be defined asa tool to assist in assessing the cost performance of construction work, aimed at facilitating choices where there are utility(a) means of achieving the clients objectives and where those alternatives differ, not only in their initial cost but also in their subsequent operational be.Whole life idea (costing) is not the universal panacea for the construction sector, but properly unsounded and employ it is a useful and powerful tool. (Flanagan, R., Jewell, C., 2005)Figure 2.2 The hidden be, Source (Ellingham, I., and Fawcett, W.,2006) bandage initial costs are clear and visible at an early salute, longer-term costs are not see Figure 2.2. Nevertheless(pre nominal), these longer-term costs can far outweigh initial capital costs, and should have a much stronger influence on lasts with respect to facilities and individual elementsFigure 2.3 Whole life cost, Source (Calford seaden, 2009)The sequence of the seven phases of a buildings life is set forth appropriately in British Standard 3811.Whole life phases descriptionAssociated costsSpecificationThe formulation of the clientsInitial costsassociated with land purchase, professional fees and construction.Requirements at inception and briefing.Feasibility and viability of divers(prenominal) proposalsDesignTranslating ideas into working drawingsCost provision including whole life costing of alternative blueprint solutionsfrom outline proposals organization and detailDeignAssociated contract procurement documentationInstallationThe construction processInterim payments and financial statementsCommissioningHandover of the excogitate to the client terminal accountsMaintenanceThe project in useRecurring costs associated with repairs, ladder and substitution itemsModificationAlterations and modifications necessary to keep the project to a good standardCosts associated with major refurbishment itemsReplacementEvaluation of the project for major changes or the site for redevelopmentRedevelopment costs give in 2.1 Whole life phases (Ashworth.A, 2008)2.4 WHY risk of infection ASSESSMENT IN WHOLE LIFE COSTINGCombined with WLCC, risk assessment should from a major element in the strategic decision making process during project procurement and also in value analytic thinking. Project cost, design and operational decision parameters are often established very early in the life of a given building project. Often, these parameters are chosen ground on owners and project teams personal experiences. While these approaches are common, they do not provide a robust framework for dealing with the risks and decisions that are taken in the military rating process. Nor do they all ow for a systematic evaluation of all the parameters that are considered definitive in the examination of the WLCC aspect of a project. Capital costs and future costs must be quantified, analysed and presented as part of the strategic decision making process in todays business environment. Cost analysis and value analysis techniques are utilise to mensurate and assess the economic implications of investment in building facilities in general. While these techniques do provide a basis for making project cost decisions, they most often do not account for many of the parameters which whitethorn affect the actual project value or cost (Plenty et al.1999). guess assessment should be an integral part of the WLCC process. A framework that uses positive decision making processes and risk assessment of each aspect of the decision to be taken in performing WLCC life cycle analysis can help owners, design teams and cost planners in marking strategic decisions based on analysis results that truly the inherent risks and costs colligate to the project.2.5 DATA REQUIREMENTS IN WHOLE LIFE CYCLE COSTING AND RISK ASSESSMENTFlanagan and Norman (1983) high-pitchedlighted three fundamental requirements in successfully implementing a life cycle costing methodology.A system by which the technologies can be used a set of rule and procedures.selective information for the proposed project under consideration estimates of initial and rivulet costs of elemental life cycles, discount rates, inflation indices, time periods of occupancy, life force consumption, cleaning and the like. The information call for to take in out WLCC analysis can be derived from a range of assertable sourceDirect estimation from know costs and componentsHistorical selective information from typical applicationsModels based on expected performance, average, etc.Best guesses of the future trends in technology, marking applicationProfessional skill and judgement.All these factors have nearly bearing on the timbre of selective information that is collected and how it is used in mannequin and decision making processes. Whilst WLCC is now becoming astray used as a valuable tool in the design process, probably two key factors have undersized its potential matchA suspicion that life cycle cost estimates are in some sense inaccurate or based merely on guessworkThe absence of sufficient and appropriate cost and performance info.2.5.1 Data sourcesIt has been highlighted how important the selective information and its composition are to WLCC, but where can this data be obtained? Ferry and Brandon (1991) highlighted six main outputsTechnical pressBuilders price books instruction services such as the Building Cost Information Service (BCIS)Government research literature such as from the National Economic Development Office (NEDO)University researchTechnical information services.Flanagan and Norman (1983) defined these into four subgroupsManufacturers dataSuppliers and contractorsMode lling techniquesHistorical dataManufacturers dataThese specialists as a rule give have detailed breakdowns of the life cycle of the product, its material components and its performance characteristics.This data can also be obtained from other authorities that are responsible for testing the integrity and material for construction. The British Board of Agreement is a UK government testing body which carries out independent testing of materials used in the industry. Materials that meet a set specification and performance are issued with agreement certificates, which give flesh out on service lives and other critical information. The Building Research Establishment also carries out testing on materials and can be a useful source of information.2.5.3 Forecasts from modelsIn the absence of any historical or suppliers data / feedback, models can be used as a way to analyse the WLCC implications of particular design decisions or choices of materials. The concept behind modelling is to fa cilitate and introduce a higher degree of accuracy in the estimates made by cost analysts when drawing up life cycle cost profiles.Historical dataHistorical data can be obtained from a variety of sources such as the BMCIS, clients and building occupies and in some cases the design team themselves. The value of historical data is relevant in that the set of initial capital cost and subsequent running cost can be categorised for accepted groups of element in the building and this comparison can then be used to identify the elements which will benefit from a life cycle cost approach.2.6 COMPONENTS OF A WHOLE LIFE COST ANALYSISFigure 2.4 Components of a whole life cost analysis,Source (Boussabaine, A., Kirkham, R.2004)2.6.1 Service lifeThe prediction of component service life is a very important aspect in WLCC assessment. oneness such methodology currently in use is the factor method. The ISO/CD 15686-1 factor method for the estimation of the service life of components or multitude under specific conditions treats the service life as a deterministic value. In reality the service life has a big drive away and should be treated as a stochastic quantity.2.6.2 Capital costsReturns on invested capital costs are internal in marking decisions on investment scenarios. Minimum capital commitment would be required if the client wanted to bear most of the cost until the building was pass over. In the event of limited capital budget is the prime consideration of the client, quality, in the form of a reduced specification, is like to be restricted. (Ashworth and Hogg, 2002, p.192).Further the cost of the project is a combination of land ,construction ,fees and finance and the employer will carry to balance these against the various procurement systems available (Ashworth,1997,p.107). The capital cost objectives that inquire to be assessed include.Land acquisition cost. The location, and land viability may have a direct effect on the whole life cost and life expectancy of a facility.Predesign costs. The amounts of time and quality of information generated at this stage have great consequences on the quality and operation of a facility. The investors have a good opportunity to optimise the whole life cost of a facility through the selection of component and functional flexibility. Ideally, the issues relating to obsolescence should be investigated, accounted for as costs at this stage.Design costs. The quality of design in terms of error, detailing and buildability will have a direct effect on the cost of production and operation. A high quality building might also require higher costs in use in order to maintain its high aesthetic quality in use (Ashworth and Hogg, 2000)Development and production costs. The quality of workmanship is directly connect to the level of maintenance. It is important to ensure that quality control is in place to ensure sound construction practices are used.FeesRisk costs monetary costs, tax, interest, etc.2.6.3 operabl e costsOperational costs are less certain as the time span increases due to uncertainties in energy costs, maintenance, fees, staff and regulatory changes. It is important to view operational cost estimates in their holistic state several qualitative factors will have an important effect on the correspond operational costs. The operational cost objectives that need to be assessed includeFactors which contribute significantly to the total operational costsOptimum balance between capital and operational costsOperational risk management systemsOptimum asset cleaning proceduresOptimum waste management proceduresOptimum utilities management proceduresOptimum staffing levelMinimum interference due to denial use of the asset.2.6.4 Maintenance costsThe costs and antecedence of required maintenance, rehabilitation and refilling can be obtained from historical data but base cost estimates have to be supplemented with expert opinions in order to perform whole life cycle analysis and risk a ssessment. The maintenance cost objectives that need to be assessed include.Performance indicators for the assessment of maintenance costsRemaining service life of facility componentsFrequency and replacement costsIn house or subcontracted maintenanceSelection of out-of-door and interior materials and surfacesSelection of light fixtures with minimum routine repair and replacement requirements. subject of preventive maintenance programme.2.6.5 Financing costs and revenuesThe objective here is to deal with WLCC input parameters of discount, inflation rates, taxes, expenses, etc. Critical analysis of investments must include both initial and ongoing costs and renovations over the period of the investment. This will allow stakeholders to compare different options and decide which offers the best return for the investment. Usually discount rate is used for computing the value of future revenues. This includes a large degree of risk return. For example, if the discount rate is set too h igh or too low then future costs may appear insignificant this could result in high operational costs and capital costs, which will discourage investment. Also, if inflation is different from the selected rates this may lead to inappropriate investment choices. The financing cost objectives that need to be assessed include assumptions aboutInflation rates, interest and taxeslevel of returns and risksOptimum discount rateEconomic activity. This has a direct on the economic obsolescence of facilities.Level of risk financingCash inflow versus outflows different rates, time periods and cash flows.The characteristics of new or knowing facilities are very important aspect of WLCC computation. For the example a kind may exist between building function and mechanical service costs, a curiously important feature of modern facilities. Little research has been published with study to the impact of building characteristics on WLCC.2.6.6 Asset characteristicsThe characteristics of new or exi stent facilities are very important aspect of WLCC computation. For the example a relationship may exist between building function and mechanical service costs, a particularly important feature of modern facilities. Little research has been published with regard to the impact of building characteristics on WLCC. Experience shows that an validatory link exists through many aspects, including energy, thus increasing WLCC and possible downtime costs in maintenance. The characteristics that should be assessed and included in the computation of WLCC include.Layout and locationFunctionalityConstruction technologyGross floor surface areaNumber of storeys and storeys heightGlazing areaOccupancy (m2/person)Shape of the facilityAestheticsEnergy saving measures persona of componentsType and quality of public health systemType and quality of superstructure building fabricType and quality of internal fabricType and quality of electrical and mechanical servicesExtent of site industrial plant2. 6.6 Economic performance measuresThe procurement of building facilities involves a variety of decision making who decide on alternatives that generate capital and ongoing costs during a projects life. These capital costs generative value for different stakeholders and potential for returns to the project owner which should be durable over the life cycle of the asset. Therefore ,economic performance measurement in WLCC is very important for decision making to evaluate and allocate identifiable value from capital cost and continuing costs to relevant stakeholders in the life cycle of a facility. The objective that should be assessed under this heading should include.What type of performance indicators should be used to aid in the selection of alternativesThe boundaries of these indicators, i.e. minimum and maximum values that the stakeholders are prepared to work toThe best measures of performance in terms of WLCC outputsMechanisms for WLCC benchmarkingMeasures for mitigating economic risks.2.7 USE OF WHOLE LIFE COSTINGFerry and Flanagan (1991) point that application of WLC, in any environment, exists on two levels. The lower level of life cycle costing is represented as a focussing Tool to aid the decision making process. The higher level of life cycle costing is termed the Management System whose continuous operation dictates that tariff for asset management should be retained. In general terms, they argue that during the management of a typical project, all stages, except project initiation, have a potential use for WLC.Whole life costing as a decision-making toolThe primary use of WLC is to be used in the effective choice between a number of competing project alternatives. Although this can be done at any stage of the project, the potential of its effective use is Maximum during early design stages. In addition, the ability to influence cost decreases continually as the project progresses, from 100% at project sanction to typically 20% or less by the time construction starts. Furthermore, once the building is delivered, there is a very slim recover to change the total cost of ownership because the decision to own or to purchase a building normally commits users to most of the total cost of ownership. According to Kirk Al-Hajj ( 2004), 80-90% percent of the cost of running, maintaining and repairing a building is determined at the design stage.Figure 2.5 the relationship between whole life cost savings and time of implementation(Source- Al-Hajj,A.,Pollock,R.,Kishk,M.,Aouad,G.,Sun,M.andBakis,N,2004)Whole life costing as a management toolWLC can also be used as a management tool to identify the actual costs incurred in direct assets. The primary objective is to relate running costs and performance data. Thus, it could be useful for clients who want to estimate the actual running costs of the building and also for budgeting purposes. In addition, it can be a valuable feedback device to assist in the design (Al-Hajj,A.,Pollock,R.,Kishk ,M.,Aouad,G.,Sun,M.andBakis,N,2004)BARRIERS TO SUCCESSFUL slaying OF WHOLE LIFE COSTING TECHNIQUES2.8.1 Industry barriersThe capital cost of construction is almost always separated from the running cost. It is normal practice to accept the cheapest initial cost and then hand over the building to others to maintain. In addition, there is no clear definition of the buyer, seller, and their responsibilities towards the operating and maintenance costs (Bull 1993). Furthermore, there is a miss of motivation in cost optimization because the design and cost estimating fees are usually a percentage of the total project cost. However, the expansion of new project delivery systems such as private finance initiative (PFI) and build operate and transfer (BOT) seems to surpass these obstacles2.8.2 Client barriersBull (1993) pointed out that there is also a lack of understanding on the part of the client. This may increase the possibility of subjective decision making. In addition, there are u sually multiple aspects of require desired by clients. Most of these aspects cannot be assessed in a strict WLC framework. This is mainly because either they are in conflict with the main WLC objective or because they are mostly non-financial. Some of these factors are even nonphysical such as aesthetics. In many cases, these intangibles are also in conflict with results of WLC (Picken 1989 Wilkinson 1996).Analysis difficultiesThe major obstacle facing the analyst is the bar of obtaining the proper level of information upon which to base a WLC analysis. This is because of the lack of appropriate, relevant and reliable historical information and data (Bull 1993). In addition, costs of data allurement are enormous (Ferry and Flanagan 1991). Furthermore, the time needed for data collection and the analysis process may leave inadequate time for the essential dialogue with the decision-maker and the re-run of alternative options. This is one of the reasons why computerised models are valuable. Another worry is the need to be able to forecast, a long way onward in time, many factors such as life cycles, future operating and maintenance costs, and discount and inflation rates (Ferry and Flanagan 1991). Besides, the uncertainty surrounding the variables in any WLC exercise should be properly assessed (Al-Hajj,A.,Pollock,R.,Kishk,M.,Aouad,G.,Sun,M.andBakis,N,2004)PRODUCING COSTS WHAT NEEDS TO BE CONSIDERED?Before any evaluation of the projects whole life cycle costs can be made, the following factors need careful identification.Overall time scale of the building or element i.e. the life cycle bidding of all costs and revenues attributable by disposal timeThe design lives of the various components and equipment so that any weighing can include for replacements and repairs at appropriate timesObsolescence where changes in technology, land values, working styles make the economic life of the building shorter than the planned design useTax implications allowances for certain items of plant and equipment can be offset against tax, thereby reducing their costs to the building ownerThe time value of money (discounting) which incorporates allowances for interest and can consider inflation (iii) are relatively easy to calculate (iv) (vi) are much more unpredictable as they tend to be guesses.From these elements trace the typical WLC/LCC approachSTEP 1 establish the objective of the calculationSTEP 2 choice of costing methodSTEP 3 formulate assumptions from list aboveSTEP 4 identify the costs and the life cycleSTEP 5 compare alternative solutions and commitSTEP 6 sensitivity analysis (technique whereby costs revisited to identify items apt(predicate) to change and the impact of those changes)STEP 7 report costs to clientWHOLE LIFE COST / SUSTAINABILITYContractors, particularly those involved with public private partnerships are recognising the importance of sustainability issues and the early consideration of whole life cost.The proce ss of getting the minimum whole life cost and environmental impact is so complex, being a three dimensional problem as indicated below.Figure 2.6 Whole life cost considerations, Source (Cartidge, 2006)Each design option will have associated impacts and costs, and trade-offs have to be made between apparently unrelated entitiesEnvironmental value. This focuses on environmental aspects of development such as pollution, waste and CO2 emissions. These issues involve the initial manufacture of construction materials, the construction of the project, its use and eventual replacement. In this context value is maximised when environmental pressures are minimised to the level of the carrying capacity of ecological systems while using intrinsic resources effectively and safeguarding natural capital and its productivity.