1. Whole Life Cycle Costing

Question 1

What five elements do you need to manage a project?

Answer 1

Initiating

Planning

Executing

Controlling

Closing

Question 2

What is Whole Life Cycle Costing?

Answer 2

WLCC is the TOTAL cost of ownership over its useful lifespan, including:

Design, development, production, maintenance, support, and financial disposal.

Question 3

A benchmarking study of the UK government construction projects in 1998 showed that X% of the projects exceeded their budgets by up to Y%.

What are X,Y?

Answer 3

75% exceeded their budgets by up to 50%.

Question 4

What are the estimated cost ratios( construction : maintenance : operational) of owning an office building for 30 years.

? : ? : ?

Answer 4

construction : maintenance : operational(staff)

1 : 5 : 200

Question 5

WLCC are dividing into two sections, what are they?

Answer 5

1 - Initial costs

2 - Sustaining costs

Question 6

Sustaining costs are split into three elements; maintenance, operational and disposal costs.

Give examples of disposal costs.

Answer 6

Permits & legal

Wrecking/disposal costs

Remediation

Green and clean cost

Question 7

Typically, what is the ratio between sustaining costs and initial costs

Answer 7

Sustaining costs : initial costs

(2-20) : 1

There is a large variance in what sustaining costs can be.

Question 8

What is the ‘process flow’ of basic WLCC computation?

Answer 8

1 - Define the problem requiring WLCC

2 - Identify possible Alternatives/ Study Period

3 - Prepare cost breakdown structure

4 - Gather cost estimates

5 - Calculation of the WLCC

6 - Selection of the least-WLCC alternative

Question 9

What is the “study period”?

Answer 9

The study period is the time over which the costs and benefits related to a project are of interest to the investor

Question 10

Give the four main capital (initial) costs of a project?

Answer 10

Planning
Design
Purchase
Construction

Question 11

Present Value is today’s value of future cash flows. How is present value calculated?

Answer 11

PV= FV / (1+r)^n

FV = future value
r = discount rate
n = number of time periods

Question 12

To calculate present value you need to know when in the future the cost will occur.

How would you deal with a cost that is distributed over many years?

Answer 12

Calculate the total mass (cost) and find the centre of mass of the cost distribution.

E.g a cost of £1000 per year for years 2005 and 2006.

This could be represented as a £2000 cost at the end of 2005.

The cost is placed in the middle of the timeline since the distribution is even.

Question 13

What would the present value be for:

£0 per year in 2006 linearly increasing up to £10,000 per year in 2012.

discount rate of 5%

Answer 13

£30,000 cost positioned at the start of 2010( 4 time intervals)

PV = 30,000/(1+0.05)^4

PV = £24,681