Welsh Health Estates Life Cycle Costing

Cost Model User Guide

March 05

Life Cycle Costing – a Users Guide

Cost Model User Guide

Further information: Kerry Ward 029 20315540

[email protected]

Welsh Health Estates PO Box 182 Bevan House Unit 24 – 30 Lambourne Crescent Llanishen Cardiff CF14 5GS Telephone: 02920 315500 Fax: 02920 315501 Internet: Intranet:

www.wales.nhs.uk/whe howis.wales.nhs.uk/whe


Life Cycle Costing – a Users Guide Life Cycle Costing System User Guide Contents 1.0

Background to Life Cycle Costing



Uses of the Model



Using the Whole Life Costing Model



Using the model in 13 easy steps



Printing the Report



Using the Model to select a competing building / engineering element 11


Using the Model to develop a maintenance Programme



Life Cycle Costing – a Users Guide 1.0

Background to Life Cycle Costing


This model has been developed in response to the National Estates Framework (NESF), published in October 2002, which gave a commitment to commission training for estate officers in life cycle costs and direct Welsh Health Estates (WHE) to develop a life cycle-cost advice facility for the NHS.


The NHS has traditionally concentrated on initial capital costs despite this cost only representing a fraction of the full cost of ownership of the asset over its useful life. A greater understanding of these life cycle costs is needed to plan more effectively the expenditure of capital money. Of greater importance is the need to make investment decisions based upon reliable cost models, which include whole life costs.


A greater understanding of these life cycle costs is needed to plan more effectively the expenditure of local discretionary capital and revenue monies. The effect of a failure to address these issues can result in far greater expenditure being required in the medium to long term to rectify the lack of properly directed and timely investment in the estate.


Life Cycle Costing is defined as: “the systematic consideration of all the relevant costs and revenues associated with the acquisition and ownership of an asset” (DETR fact sheet Nov. 1998). Where all the costs associated with various options for a project are added together to represent a total cost. Future costs are discounted to a present day value. Essentially, whole life costing is a means of choosing between options and their associated income streams over a period of time by developing the knowledge of what we know now and what we expect the future will bring.


the costs which should be considered are: • • • •

Initial capital costs, opportunity and future costs. Initial costs include design, construction and installation, purchase or leasing, fees and charges. Future costs include all operating costs, (rents, rates, cleaning, maintenance, repair, replacements or renewals, energy and utilities) Opportunity costs represent the costs of not having the money available for alternative investments (which could earn money) or the interest payable on loans to finance work.


Uses of the Model


It provides a “rationale for choice in circumstances where there are alternative means of achieving a given object, and where those alternatives differ not only in their initial costs, but also in their subsequent operational costs”. (DETR fact sheet Nov. 1998).


Life Cycle Costing – a Users Guide 2.2

It is particularly used to: • • •


Determine whether a higher initial cost is justified by reductions in future costs. Identify whether a proposed change is cost effective against the “do nothing” option. Form the basis of a planned programme for maintenance throughout the whole life of a scheme. Using the Whole Life Costing Model

Open the Excel document: New Model Go to Front Page worksheet The Front Page worksheet (figure 1) is the starting point for the life cycle costing model. It allows you to develop and add the details for your own projects. By typing the data here, the headings on subsequent pages will appear • type name of hospital: cell E18 • type option number: cell H21 • insert date: cell K27 Type name of the hospital

Figure 1

Type option number

Insert date


Life Cycle Costing – a Users Guide Go to Scheme Overview worksheet The basic layout of this worksheet is shown in figure 2 below. This gives a written description of the model such as: site layout, type of construction, number of storeys and other site-specific information. For completeness of your model, these details can be edited or an abridged version of the scheme details can be stated to give at least an outline of the particular option under consideration. But at Outline Business Case (OBC) stage only general site information will be known, and the functional content should be fully defined. At Full Business Case (FBC) stage, more site specific information will be available due to the greater depth of knowledge of the: topography, site services, planning constraints and aspirations of the proposal. For the purpose of estimating the cost of the options, this work sheet can be left very brief, with just enough detail to distinguish one option from another.

Give an overview of scheme

Describe the scheme particulars here

Figure 2


Life Cycle Costing – a Users Guide Go to Matrix Summary worksheet Figure 3 below shows the layout of the Matrix Summary worksheet. The summary collects the data from: the Works Costs, the Life Cycle Costs and the Facilities Costs worksheets. By inserting the fee percentage the total Fees are calculated. The Summary clearly identifies the Total capital costs and the Net Present Value (NPV) of the model. The page provides other valuable data for “at a glance” viewing. • to change the size of the building revise the floor area: cell J33 • state the MIPS price level that the Works Cost has been priced at: cell J34 • state the location factor that the option has been referenced at: cell J38 • to calculate the fee allowance, state the percentage: cell J35 Note the use of the MIPS level and Location factors are for information only and they do not yet revise the Works Cost for the model. The model is being developed and these changes may be incorporated as new price levels and location factors are changed. The MIPS level does however automatically update the life cycle costs worksheet.

To change the size of the building, insert floor area here.

Figure 3

State the MIPS level of the capital costs

State the location factor here

Type the fee % here


Life Cycle Costing – a Users Guide Go to Whole Life Cost Comparison worksheet Figure 4 shows a “screen view” of the Whole Life Cost worksheet. The figure shows the expenditure for the first six years while the remaining worksheet shows costs allocated over the entire asset life i.e. 60 years for a new building. For assets with a shorter life e.g. refurbishment schemes, only the first 30 years need to be evaluated. But to compare this option with new build options you need to convert the NPV to Annual Equivalent Costs (AEC) and your financial advisors will need to do this for you. To apply the Works Cost for your model, transfer the costs from OB1 / FB1 cost forms (box 5., excluding VAT but including Planning Contingencies). Remember to insert the costs according to the years of expenditure. Insert to cells E13, F13 etc. Note year 1 should be the year in which commissioning occurs and when the facility is available. All Facilities and Life cycle costs will commence following year 1. To apply “other or Non Works Costs, and Planning Contingencies” costs for your model, transfer costs from OB1/FB1 cost form and insert to cells E17, E19 etc.

Figure 4

Insert the Works costs in row 13, and include the Planning Contingencies in the Works cost.


Life Cycle Costing – a Users Guide Go to Life Cycle Cost Scheme worksheet Figure 5 shows a part “screen view” of the whole worksheet. Only the first three years expenditure are displayed in the figure while the worksheet allows 60 years for assets with a full life expectancy. Refurbishment schemes, which anticipate a reduced life, should be evaluated for a life of 30 years. Comparison of this option against a new build option will require the NPV to be converted to the EAC, and your financial advisor will do this for you. To use this worksheet: .1 your quantity surveyor will allocate the anticipated costs across all of the building and engineering elements for the whole 60 year period using cells K17 onwards. .2

if your scheme is very close in size and specification to the model, then it will be prudent to use the same data as the model – or adjust the costs pro rata for a change in size of the building. This will be done automatically for you when you state the size of the building. The model is based on the most accurate and tested data available for a community hospital. The model lends itself to manipulation according to the type of building evaluated.


at OBC stage where this level of data is not available, the model data will be adjusted pro rata to the size of the development.


at FBC stage, when the scheme has been developed to 1:200 scaled plans; a full analysis of the costs should be applied.

Figure 5

Insert repair / replacement costs for all elements for the whole life of the asset.


Life Cycle Costing – a Users Guide Go to Facilities Costs worksheet Figure 6 shows all of the elements that are included for Facilities costs for running a community hospital. Where possible actual data for your trust should be applied, but in its absence the model data can be used at OBC stage. At FBC stage the scheme should have been developed to enable more accurate Facilities costs to be used. .1 to change any of the rates, insert data into cells C11-33. The data is linked to the Gross Floor area (GFA) of the building, which is first reported on the Matrix Summary worksheet any changes are automatically brought forward to the Matrix Summary. Note: all costs are based on the latest returns to WHE for the year 2003-04. Revise these rates as appropriate, update to the most recently available for your trust.

Figure 6


Life Cycle Costing – a Users Guide 4

Using the model in 13 easy steps

No. 1 2 3 4 5 6 7 8 9 10 11 12

Worksheet Front Page ditto ditto Scheme overview Matrix Summary Ditto Ditto Ditto Whole Life Cost Comparison Ditto Ditto Life Cycle Cost Scheme

Cell E18 H21 K27 D14 J33 J34 J38 J35 E13 E17 E21 K17


Facilities Costs



Printing the Report


A hard copy of the report can be obtained by printing each worksheet. worksheets have the print area already defined.


The report can be used within a business case to replace the economic appraisal. However, the Matrix Summary worksheet needs to be adjusted to incorporate additional fields such as: land opportunity costs and staffing costs.


Using the Model to select a competing building / engineering element The model can be used to choose different elements such as an asphalted flat roof compared with a tiled pitched roof. The maintenance and replacement programme is different for each element and the capital and life cycle costs should be revised for each element. To do this, apply stages 9 and 10 above.


Using the Model to develop a maintenance Programme The Whole Life Cost worksheet forms the basis for budgeting and programming for a maintenance regime. It provides a plan of expenditure and that Finance departments can use to anticipate high and low demands in the maintenance budget. The estates department can use the plan to more fully investigate the maintenance cycle, having taken account of actual deterioration of the elements together with recent developments to the estate and current service planning.

Action Type name of hospital Type option number Insert date Edit descriptions – if necessary Change size of building area Revise MIPS level – if necessary Revise Location factor – if necessary State fee level Type Works Costs Type Other / Non works costs Type Planning Contingencies Apportion Life Cycle Costs – if different from model Revise rates – if necessary