Whole Life Appraisal: for Construction

194 Pages·2005·0.77 MB·English

by  Roger Flanagan

Whole Life Appraisal
for Construction
Roger Flanagan
Carol Jewell
with
George Norman
Blackwell
Science

Whole Life Appraisal
for Construction
Roger Flanagan
Carol Jewell
with
George Norman
Blackwell
Science
(cid:1)2005byBlackwellPublishingLtd
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Firstpublished2005
LibraryofCongressCataloging-in-PublicationData
Flanagan,Roger.
Wholelifeappraisalintheconstructionsector/RogerFlanagan,CarolJewell.–1sted.
p.cm.
Includesbibliographicalreferencesandindex.
ISBN0-632-05046-2(pbk.:alk.paper)
1. Building–Estimates.I.Jewell,Carol.II.Title.
TH435.F622004
692–dc22
2004009639
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Contents
Acknowledgements vii
Preface viii
1 Wholelife appraisal – an introduction 1
1.1 Objective 1
1.2 What iswhole life appraisal (WLA)? 1
1.3 Why bother with wholelife appraisal? 2
1.4 Is whole life appraisal differentto whole
life costing (WLC)? 2
1.5 Who uses WLA and WLC? 2
1.6 When should WLA be undertaken? 3
1.7 What isthelink betweenbest valueand
best price? 3
1.8 Nobody can accurately forecast the future,
sohowreliable are the results ofa wholelife
appraisalexercise? 4
1.9 How can money spent atdifferenttimes over
the life of a facility be incorporatedinto WLA? 4
1.10 What discountrate shouldbeused? 4
1.11 How isinflationtakeninto accountin the
calculations 5
1.12 Why isn’t WLAused more widely? 5
1.13 So why bothernow with WLA? 6
1.14 Has the computermade a difference to
the calculation of WLA? 7
1.15 What hashappened overseas? 7
1.16 The wholeprocess seems to besurrounded
by jargon;how can WLAbemade simpler
to understand? 8
1.17 Where does sustainability fitwith WLA? 8
iii
iv Contents
1.18 Have the Construction Design andManagement
Regulations (CDM) 1994changedthe way
wholelife issues are considered? 8
1.19 How does WLA fit with facilities/asset
management 9
1.20 What isservicelife planning? 9
1.21 Integrated Logistic Support(ILS)isa term
used by the defence and aerospace industries;
isWLAused in ILS? 9
1.22 What isthedifference between running costs
and operating andmaintenance costs? 10
1.23 How does theresidual valuework? 10
1.24 Should disruption costs beincluded
in the WLA? 10
2 Wholelife appraisal:preliminaryconcepts 11
2.1 Introduction 11
2.2 Wholelife appraisaland construction 15
2.3 Performance of systems,components
and materials 17
2.4 Designwithwhole life appraisal 18
2.5 Wholelife appraisalfor newand old facilities 20
3 An overview of whole life appraisal 23
3.1 The importance of wholelife appraisal 23
3.2 The adoption of whole life appraisal 23
3.3 The balancebetween fixed andvariable costs 26
3.4 Different client motivationsfor theuse of
wholelife appraisal 30
3.5 The implementationof a whole life
appraisalsystem 34
3.6 The outputof whole life appraisal 40
3.7 Some unresolved problems 44
4 Wholelife appraisalat theplanning
and design stage 45
4.1 Introduction 45
4.2 The components ofwhole life appraisal 48
4.3 Wholelife costing andcostmanagement 54
4.4 Appendix toChapter4 58
Contents v
5 Discounting and thetime value of money 65
5.1 Introduction 65
5.2 Discounting 67
5.3 Choosing between alternativeoptions 78
5.4 Internalrate of return (IRR) 83
5.5 Inflation 84
5.6 Risk, uncertainty andsensitivity analysis 89
5.7 Summary 91
5.8 Appendix Ato Chapter5 92
5.9 Appendix Bto Chapter 5 93
6 Datasources for whole life appraisal 95
6.1 The importance of improving data accuracy 95
6.2 Shared data 96
6.3 Computer aided design(CAD) 97
6.4 Basic datasources 97
6.5 Runningcosts ofdifferent types ofbuildings 101
6.6 Data ondurability andlife expectancy
of materials 108
7 Operations and maintenance 115
7.1 Maintenance 115
7.2 Energy in buildings 121
8 Apractical approachto whole life appraisal
for construction 129
8.1 Introduction 129
8.2 Initial problems 129
8.3 Using the weighted evaluation technique
as a decision-making tool 130
8.4 Awhole life approach involves afeedback
system 134
8.5 Wholelife analysis 136
8.6 Wholelife planning 137
8.7 The relationship between whole life analysis
and whole life planning 138
8.8 Cost relationships 140
8.9 The sequenceof whole life analysis, whole
life planning and whole life management 142
8.10 Documentationformat for wholelife planning 144
8.11 Costs and benefits 147
vi Contents
9 Taxation and whole life appraisal 149
9.1 The implications oftaxation and grants for
wholelife cost 149
9.2 Capital allowancesfor facilities 150
9.3 Capital allowancesfor machinery, plantand
equipment 153
9.4 Capital savings allowances and energy
savings 154
10 Integrated logistic support(ILS) 159
10.1 What isILS? 159
10.2 Where did ILS come from? 159
10.3 What isthe difference between ILS and
wholelife appraisal? 160
10.4 ILS andconstruction 160
10.5 Why use ILS? 161
10.6 The concepts ofILS 162
10.7 The mainsteps ofILS 162
10.8 The benefits ofILS 163
10.9 An exampleof ILS 163
10.10 Summary for ILS 164
11 Summary and conclusions 165
Glossaryof terms usedin whole life appraisal 169
References andbibliography 175
Index 181
Acknowledgements
This book has emanted from research undertaken over the past
20years.Wearegratefultoorganizationswhohavegenerously
helped and allowed us to use source data. The book is a pro-
gression from Life Cycle Costing for Construction and we are
indebted to the Royal Institution of Chartered Surveyors who
allowed us to use some of the ideas from the Flanagan and
Normanbook.
AspecialthankstoGeorgeNorman,whoseoriginalideasand
workhavebeenused.GeorgeisbasedatTuftsUniversity,USA
where he is a professor in the Department of Economics. His
expertiseandknowledgehaveprovedinvaluableovertheyears.
The work on discountingis exclusively George’swork.
vii
Preface
Intheoldeconomy,thepressurewastominimiseinitialcapital
cost and, although ‘lip service’ was paid to the operating and
maintenance costs, in effect, they were ignored. In the new
economy, everybody is interested in value for money, whether
theyaretheuser,investor,developer,designteam,construction
team, or member of the supply chain. Over a 25-year period an
office building will cost about three times its initial capital cost
to operate and maintain, yet far more attention is paid to the
initialcapitaloutlaythantothesignificantrunningcosts.Itisfar
tooshort-sightedtoconsiderjusttheinitialcostswhensubstan-
tial costand environmental savingscan bemade over time.
Wholelifeappraisalisavaluabletoolthatconsidersbothcost
and performance over the whole life of a facility and involves
balancingthecapitalcostsagainstthefutureoperatingandmain-
tenancecostswhetheritisaschool,aroad,anairportorapower
plant. The privatisation of infrastructure and buildings around
theworldhasledtoanincreaseinthenumberofbuild-operate-
transfer/publicprivatepartnerships/concessionschemeswhere
a concession is granted to design, finance, build and operate a
facility over a defined time horizon of 20–30 years. Balancing
whole life cost and performance against the capital costs is
crucial to the concession team for the economic viability of the
investment.
The whole life concept is neither new nor complicated and
there is a general acceptance that it will lead to better decisions
on design, refurbishment, and facilities and asset management,
andprovidewholelifeeconomies.However,thereremainchal-
lenges in the application of whole life techniques due to a
number of reasons including the ‘data problem’, with the pau-
city ofstandardised information about cost andperformance of
viii