Whole life costing in construction - A state of the art review

This report is a state of the art review of whole life costing in the construction industry. It is the first of a series reporting on-going research undertaken within the research project ‘Developing an integrated database for whole life costing applications in construction’. This project is funded by the EPSRC and undertaken by a unique collaboration between two teams of researchers from the Robert Gordon University and the University of Salford. The fundamental basics of whole life costing (WLC) are introduced. First, the historical development of the technique is highlighted. Then, the suitability of various WLC approaches and techniques are critically reviewed with emphasis on their suitability for application within the framework of the construction industry. This is followed by a review of WLC mathematical models in the literature. Data requirements for WLC are then discussed. This includes a review of various economic, physical, and quality variables necessary for an effective WLC analysis of construction assets. Data sources within the industry are also highlighted with emphasis on current data collection and recording systems. In addition, the requirements of a data compilation procedure for WLC are outlined. The necessity of including the analysis of uncertainty into WLC studies is discussed. Attempts to utilise various risk assessment techniques to add to the quality of WLC decision-making are reviewed with emphasis on their suitability to be implemented in an integrated environment. Essential requirements for the effective application of WLC in the industry are outlined with emphasis on the design of the cost breakdown structure and information management throughout various life cycle phases. Then, directions for further future research are introduced. Contact Petrena Morrison T: +44 (0)1224 263700 F: +44 (0)1224 263777 E: p.morrison@rgu.ac.uk Acknowledgements The research work that underpins this paper has been mainly funded by the EPSRC grant number GR/ M83476/01. The authors would like also to thank all members of the project steering group. Thanks also are due to two anonymous referees for their helpful comments and suggestions. Whole life costing in construction: a state of the art review RICS Foundation • 5 www.rics-foundation.org 1.1 BACKGROUND Historically, building designs were aimed at minimising initial construction costs alone. However, during the 1930s many building users began to discover that the running costs of buildings began to impact significantly on the occupiers’ budget (Dale 1993). It became obvious that it is unsatisfactory to base the choice between different alternatives on the initial construction cost alone. This becomes even clearer by the emergence of a number of recent trends as issues of concern for design professionals, including: facility obsolescence, environmental sustainability, operational-staff-effectiveness, total quality management (TQM), and value engineering (VE) (Kirk and Dell’Isola 1995). Thus, another costing technique currently known as ‘whole life costing’ (WLC) has developed over the years. The designation of Whole Life Costing (WLC) has altered considerably over the years. The technique has previously been called, in no particular order, terotechnology, life cycle costing (LCC), through-life-costing, costs-in-use, total-life-costing, total-cost-of-ownership, ultimate life cost, and total cost (Kirk and Dell’Isola 1995; Hodges 1996; Seeley 1996; Whyte et al 1999, Edwards et al 2000). These terms are now less commonly applied and therefore WLC is used throughout this document. Practical interest in WLC in the construction industry dates back to 1950s when the Building Research Establishment (BRE) supported a research on ‘costs-in-use’ (Stone 1960). Then, the British Standards Institution published BS 3811 (BSI 1974), which describes the sequence of life cycle phases. A guide to WLC was published by the department of industry (Committee of Terotechnology 1977). Next, the Royal Institution of Chartered Surveyors (RICS) commissioned many studies on WLC (Flanagan et al 1983; RICS 1986 1987). The Society of Chief Quantity Surveyors in Local Government prepared a report in the form of a practice manual (Smith et al 1984). Another guide to WLC-related techniques was published by HM Treasury (HMSO 1991) and was later updated in 1997 (HMSO 1997). In the last decade, numerous papers and textbooks in the area of WLC and related topics have been published reflecting the increased interest in the technique. Examples include Flanagan et al (1989), Fabrycky and Blanchard (1991), Ferry and Flanagan (1991), Bull (1993), Kirk and Dell’Isola (1995), Garnett and Owen (1995), Ashworth (1996a, 1996b), Woodward (1997); Asiedu and Gu (1998), Al-Hajj and Horner (1998), ElHaram and Horner (1998), Al-Hajj and Aouad (1999), Whyte et al (1999), Kishk and Al-Hajj (1999, 2000a, 2000b, 2000c, 2000d, 2001a, 2001b) and Edwards et al (2000), among others. Recently, a centre for Whole Life Performance has been established at the Building Research Establishment (BRE) to provide the Secretariat to an industry-led Whole Life Costs Forum (WLCF) (CPN 2000). This Forum is intended to enable members to pool and receive typical WLC information through a members-only database, and produce industry-accepted definitions, tools, and methodologies (Edwards et al 2000). 1.2 DEFINITION OF WHOLE LIFE COSTING Several definitions of WLC exist. At its most basic, WLC includes the systematic consideration of all costs and revenues associated with the acquisition, use and maintenance and disposal of an asset. The BS ISO 15686 of service life planning (BSI 1999) defines WLC as: ‘a tool to assist in assessing the cost performance of construction work, aimed at facilitating choices where there are alternative means of achieving the client’s objectives and where those alternatives differ, not only in their initial costs but also in their subsequent operational costs.’ Another useful definition is adopted by the construction best practice programme (CBPP 1998a): ‘... the systematic consideration of all relevant costs and revenues associated with the acquisition and ownership of an asset’ 1.3 USES OF WHOLE LIFE COSTING Ferry and Flanagan (1991) argue that application of WLC, in any environment, exists on two levels. The lower level of life cycle costing is represented as a ‘Management Tool’ to aid the decision making process. The higher level of life cycle costing is termed the ‘Management System’ whose continuous 1 Whole life costing an introduction