The book New Generation Whole-life Costing by Ian Ellingham and William Fawcett was published by Taylor & Francis in July 2006. It is the outcome of two research projects at CAR funded through the DTI’s ‘Partners in Innovation’ programme between 1998 and 2002.

A key difference from the standard method of whole-life costing is that the new approach takes account of future uncertainty surrounding activities, prices, the durability of components, etc. ‘New generation’ whole-life costing argues that an important method of managing uncertainty is acquiring lifecycle options that allow a building owner to respond in different ways, depending on the outcome of uncertain future events. The value of a lifecycle option goes up when there is more uncertainty.

New Generation Whole-life Costing shows how to identify and value lifecycle options.

The book combines an introduction to the basic ideas of whole-life costing, a critique of the standard method, and a thorough presentation the new approach with many examples. It is aimed at practitioners rather than researchers and most of the material is presented in case study format using a modular structure, each chapter being structured around a real story derived from industry partners, presented in a non-technical way.

Uncertainty and Whole-life Costing

In the fan diagram time runs from left to right. Today’s state of the system of interest is known – it is a point on the ‘now’ line. If the future state is also certain there is a single point on the ‘future’ line. Usually there is some uncertainty about the future state, so a ‘fan’ opens to a range of possible future states on the ‘future’ line. With increasing uncertainty the fan gets broader.

Option Value in Whole-life Costing

Suppose a technology – like PV – is not cost-effective today but it might be in the future, if capital costs decline and electricity prices increase. The left hand fan diagram shows that PV is not cost-effective in the short term (negative net benefit), but it might become cost effective in the future (positive net benefit). The second diagram shows the value of PV. Where net benefit is negative there is no investment so value is zero, but value is positive when net benefit is positive. The value diagram shows zero values and positive values, so there must some overall positive value. This is shown in the third diagram – the positive part of the value diagram is weighted for probability and discounted to the present, giving the option value of PV, even though it is not cost-effective today.

Extracts from Review of New Generation Whole-life Costing

‘DTI’s recent consultation on ‘sustainable construction’ puts a strong emphasis on whole life costing. The method is certainly a significant step forward from focusing on first costs … Ellingham and Fawcett’s new book is both a real breath of fresh air and a source of some important new ideas...

‘I leave to last possibly the most outstanding aspect of the book, and that is its design. Whole life costing could be as dull as the worthy ISO standard. This book is visually a delight … the narrative is full of lively examples and visual snapshots of case studies. Thoroughly recommended for courses (though there are no exercises) and clients and agents and designers alike.’
David Fisk, Professor of Engineering for Sustainable Development, Imperial College, London