Adopting the Three Pillars Approach

Adopting the Three Pillars Approach

DOI: 10.4018/978-1-5225-2371-0.ch004
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Economic Pillar

Whole Life Costing

Historically, most project designs aimed to minimize initial cost. In the 1930s, many building users began to discover that running costs of buildings impact significantly on the occupants’ budget (Dale, 1993). Thereafter, in the 1950s, practical interest in Whole Life Costing (WLC) began. Stone (1960) put up the concept of “costs-in-use” in his building research (Langston, 2011). In the last decades, many papers and textbooks have been published in the area of WLC. Moreover, the Building Research Establishment (BRE) forum was established to pursue relevant tools and techniques to be adopted in the industry. WLC can be defined at its most basic as “the systematic consideration of all costs and revenues associated with the acquisition, use and maintenance and disposal of an asset” (Kishk et al., 2003, p. 2). The WLC concept matches the principle of sustainability, in the sense that it concerns initial cost as well as future operational cost of a project.

The primary use of WLC occurs at the stage of project selection, when there may be a number of potential project opportunities. Project sponsors must identify and compare possible investment and return on each of the opportunities. For this reason, a project sponsor would find the WLC (and not the initial project cost) as an appropriate input factor in the calculation of profitability. This is particularly true for infrastructure projects involving many years in a postcompletion operational period. In addition, the ability to influence cost parameters decreases continually as the project progresses. A small change incurred at a later part of the project process would induce disproportionately expensive cost investment. Lower cost during the life of a project and its operational period represents a cost saving in resource consumption by the society. From an economic sustainability perspective, a basic requirement in any project initiative is to minimize cost investment for the same set of project deliverables.

By its nature, WLC deals with future cost that is usually unknown, to determine and justify a set of revenue and cost parameters that is forecast a long way ahead in time. WLC-based decision-making involves the time-value-of-money calculation, where revenue and cost of the project are taken into consideration. The concepts of net present value (NPV) and internal rate of return (IRR) for commercial projects of larger scale are widely adopted. Salway (1986) suggests that the time scale for WLC evaluation purposes should be the least of physical (deterioration beyond normal repair), functional (original design function no longer required), and economic (alternate methods to achieve better economic value appear) life. Additional time scale elements for consideration may be included in the sustainability perspective, such as risks of project shutdown due to environmental (new environmental requirements for higher cost burden) and social (change in the needs and expectations of society that the project may have a lower revenue or higher cost) factors. WLC implementation requires constructing a cost breakdown structure (CBS) along with the work breakdown structure (WBS) on project constituent elements. A relevant project database should be established to:

  • Record the actual performance and cost history of the project;

  • Analyze recorded data to predict future activities and their associated costs (feed-forward of information) and to inform the design stage of other projects (feedback of information);

  • Assess and control costs whereby the main activity is to identify cost-significant items; and

  • Produce various work and expenditure planning profiles (Kishk et al., 2003).

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