Whole-life costing is an essential foundation for sustainable design. The idea is very simple: when comparing alternative strategies for constructing a project, don’t select the cheapest alternative but the one that is most economical over the long term. Whole-life costing can often show that a durable and efficient building is better value and more sustainable than a cheap design with high running costs, despite higher construction costs. But not always – spending more doesn’t always give good value.

There are two pitfalls to be avoided:

• under-investment when too little capital is invested: a higher specification would give benefits that more than justify the extra capital cost
• over-investment when too much capital is invested: the benefits from a higher specification are too small to justify the extra capital cost

Hence the need for a systematic approach to whole-life costing.

Uncertainty

To assess whole-life value you have to balance capital costs against future benefits. This is a problem because the future cannot be predicted with certainty. The standard method of whole-life costing assumes that data about the future is available, so the method is of limited value. CAR has developed a new approach to whole-life costing which takes account of future uncertainty.

The amount of uncertainty is crucial. When there is high uncertainty there are two consequences:

• future benefits are devalued, reducing the level of capital investment that can be justified
• lifecycle options become increasingly attractive

Lifecycle Options

A lifecycle option is a feature that gives a building owner the ability to respond in different ways, depending on the outcome of future events that are presently uncertain. For example, demountable partitions give the option to reconfigure an office quickly and economically if and when the layout requirements change. Demountable partitions cost more than fixed partitions: the difference is the cost of acquiring the lifecycle option to reconfigure.

Another example: photovoltaic cells are not cost-effective with the current level of capital costs and electricity prices, so they are rejected by standard whole-life costing. But the lifecycle option to install PV cells at some future date is valuable, because there is a possibility that in the future falling capital costs and rising electricity prices will make PV cost-effective. The lifecycle option to install PV is much less expensive than installing it now, and may well be a cost-effective strategy.

Options-based whole-life costing was developed at CAR by Ian Ellingham and William Fawcett in two DTI-funded research projects, and is described in the book New Generation Whole-life Costing (Taylor & Francis, 2006). This approach is the best way to analyse projects that are subject to uncertainty about future events, which means practically all projects.

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