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What is life cycle costing?

Life cycle costing 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 (LCC), 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 life cycle costing 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 life cycle costing is available in ISO 156855 and the UK Standardised Method of Life Cycle Costing for Construction Procurement.

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 10 100 times that of the acquisition costs. These principles and methods are increasingly being applied to buildings and other constructed assets.

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 users 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 life cycle costing; 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.

Structure of standard life cycle costing

The Standardised method of life cycle costing (SMLCC) looks at the whole life cost for any constructed asset and splits the periods and costs into clearly defined phases and elements. The diagram below illustrates those phases. Costs are divided initially into the following five sections: 1. 2. 3. 4. 5. construction maintenance operation occupancy end of life

Within the maintenance and operation elements there are many sub-elements, all of which are clearly defined in the SMLCC. The data structure of the SMLCC also requires costs for major replacement, subsequent refurbishment and redecoration to be presented in Building Cost Information Service (BCIS) Standard Form of Cost Analysis (SFCA) element and sub-element cost structure categories. Additionally, costs for elements 2.4, 2.5 and 2.6 may also be presented in BCIS elements.

2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 3.0 3.1 3.2 3.3 3.4 3.5 3.6

Maintenance costs Major replacement costs Subsequent refurbishment and adaptation costs Redecorations Minor replacement, repairs and maintenance costs Unscheduled replacement, repairs and maintenance Grounds maintenance Client definable costs Operation costs Cleaning costs Utilities costs Administrative costs Overhead costs Taxes (if applicable) Client definable costs

4.0 Occupancy costs There are many elements making up occupancy costs and these are often confused with operating costs. Operating costs cover all work that results from the actual building, such as the physical maintenance or replacement of a component. Occupancy costs on the other hand are costs that are more closely related to the buildings occupants, and how efficiently the building is run. This distinction is not quite the same as the difference between hard and soft facilities management, as cleaning although often included in hard FM, should be included in operation costs according to the SMLCC, as the costs are highly dependent on an organisations cleaning regime.