New Generation Whole-life Costing

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

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.

Option Value in Whole-life Costing
Suppose a technology – like photo-voltaic electricity generation – is not cost-effective today but it might be in the future, if capital costs decline and electricity prices increase. In the sort term there is no investment, so the benefit of PV is zero. If and when PV becomes cost effective there will be investment and positive benefit. Looking ahead, there is a mixture of zero benefits and uncertain positive benefits – from today’s perspective, therefore, PV has an overall positive value which is its option value, even though it is not cost-effective today. It may be a good idea to make a small investment today to acquire the option to install PV at a later date – so long as the acquisition cost is no higher than the option value.

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, Laing O’Rourke Professor of Systems Engineering & Innovation, Imperial College, London

‘Ellingham and Fawcett’s proposed ‘new generation’ of whole-life costing is a very interesting and rich perspective that will assist practitioners in taking a longer-term view. It is open to further extensions and critique but represents a clear step forward, particularly for translating novel research ideas into the culture of practice. It holds promise for all those who are convinced that the long-term view on buildings and the built environment is absolutely necessary to cope with the problems of European societies. And the authors have made this demonstration in the form of an extremely pleasant and accessible book.’
Niklaus Kohler, University of Karlsruhe, Germany (review in Building Research & Information)

New Generation Whole-life Costing is available from RIBA Bookshop.