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Capturing whole life costs. Rob Allan 13 August 2008 . Whole Life Costing. Whole Life Costing (WLC) = taking into account and evaluating the Social, Economic and Environmental impacts of a product or service - the total ‘cost’ of the solution

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Capturing whole life costs
Capturing whole life costs

Rob Allan

13 August 2008


Whole life costing
Whole Life Costing

Whole Life Costing (WLC) = taking into account and evaluating the Social, Economic and Environmental impacts of a product or service - the total ‘cost’ of the solution

(This may be also referred to as “Life Cycle Analysis” or “Total Cost of Ownership”)


Capturing whole life costs

A Whole Life Cost Model

S

O

P

A

D

P = Procurement costs

A = Acquisition costs

O = Ownership costs

D = Disposal costs

S = Sustainability assessments

Whole Life Cost = (P + A + O + D) + factor to represent S



Sustainability costs and benefits
Sustainability costs and benefits

In addition to direct costs we need to consider Sustainability costs and benefits:

  • Social costs & benefits

  • Economic costs and benefits

  • Environmental costs and benefits

    All three areas need to be considered to be able to evaluate the true WLC of a contract.



Why a risk approach
Why a risk approach?

Barriers to obtaining sustainability costs:

  • Generic sustainability questions produced different answers

  • Suppliers differing approach to sustainability was difficult to evaluate

  • Legal requirement to specify requirements relevant to the nature of the contract


A risk based approach
A risk based approach

Solution:

  • A risk based approach has been adopted to identify the key sustainability risks

  • Risks are identified which are relevant to the contract output

  • Specification used to seek proposals to minimise or remove the risks


Procurement risk log
Procurement Risk Log

The risk log takes into account the following:

  • Legal risks

  • Contractual risks

  • Financial risks

  • Political & reputational risks

  • Technological risks

  • Economic Risks

  • Environmental Risks

  • Social Risks



Example
Example

Procurement of office stationery:

Risks: (social) products supplied are linked to child labour (economic) difficult for local businesses to bid (environmental) products have no or minimal recycled content

Costs: (social) reputational damage

(economic) money going out of economy

(environmental) contributor to climate change

Tender needs to address:

(social) bidders ethical credentials and that of their suppliers

(economic) requirements split into lots

(environmental) request recycled products