In this video, I’ll answer the question, what is Whole-life costing? And I’ll consider how it compares to Life Cycle Cost.
This video is safe for viewing in the workplace.
This is learning, so, sit back and enjoy
Whole-life Costing
When we purchase something, the cost of it is often only a small proportion of the costs associated with owning it. Often, the costs of running and maintaining an asset are often many times the cost of creating or buying it. In the context of an office building, the ratio can be several hundred to one. And let’s not forget that disposing of an asset, decommissioning a facility, or vacating and demolishing a building also have significant costs.
We must therefore take all these elements into consideration when making commissioning or procurement decisions.
When we create our business case, investment appraisal, or project proposal, we need to include whole-life costs.
Definition of Whole-life Cost
Whole-life cost is the total expense of owning an asset over its entire life, from purchase to disposal. It is also known as the lifetime cost, ‘cradle to grave’, or ‘womb to tomb.’
Whole-life cost includes many things. Not all will be relevant for every asset or project, but you should consider:
- Procurement costs
- Financing and foreign exchange costs,
- Logistics and handling
- Design, building, and installation costs,
- Training and support
- Operating and utilities costs
- Carbon costs
- Maintenance and consumables
- Inspection and certification
- Depreciation
- Decommissioning, disposal, and environmental remediation costs.
Some of these elements can be difficult to calculate. You will need to make estimates of life expectancy and cost regimes far into the future – especially for assets with multi-decade planned lifetimes.
Whole-life cost also takes into account costs that are usually overlooked, such as those related to environmental and social impact.
Whole-life costs: Iceberg model
Whole-life costs can be illustrated with an iceberg model, which shows costs that go beyond price as being below the waterline. This model appears in the textbook, Procurement Principles and Management, by Baily Farmer.
The Application of Whole-life Costing
You should be using whole life costing in making an assessment of different options (for example, do nothing, new build or refurbishment) as part of an options appraisal exercise. It is a valuable way to compare the costs of buying, renting, or leasing an item of equipment.
As with any business case, you should also consider non-financial factors when making a project initiation or procurement decisions. Assets, goods, and services musty meet the users’ requirements and specification, and any external standards.
Comparison between Whole-life Cost and Life Cycle Cost (LCC)
Life Cycle Cost is often confused with whole life costs. In researching this, I found sources that suggest they are the same. They are not.
Life Cycle Cost is the cost of an asset throughout its cycle life, while fulfilling the performance requirements. It excludes the costs at either end, in procuring and commissioning, before use and decommissioning and disposal, afterwards.
Recommended Videos and Articles to Help with Astects of Business case Development
Carefully curated video recommendations for you:
- What is a Business Case? | Video
- Project Business Case: How to Create the Perfect Project Proposal
- Project Business Case: Write an Effective Project Proposal | Video
- When Should You Develop Your Business Case?
What Kit does a Project Manager Need?
I asked Project Managers in a couple of forums what material things you need to have, to do your job as a Project Manager. They responded magnificently. I compiled their answers into a Kit list. I added my own.
Check out the Kit a Project Manager needs
Note that the links are affiliated.
Learn Still More
For more great Project Management videos, please subscribe to the OnlinePMCourses YouTube channel.
If you want basic Management Courses – free training hosted on YouTube, with 2 new management lessons a week, check out our sister channel, Management Courses.
For more of our Project Management videos in themed collections, join our Free Academy of Project Management.
For more of our videos in themed collections, join our Free Academy of Project Management.
