The construction market is responding to an increase in demand for more sustainable buildings and infrastructure. Project owners as well, see value in considering life-cycle costs as part of the financial management of building projects. Taking a long view that considers not only the cost to build, but the cost to maintain and eventually demolish an asset, gives leaders a more detailed and prudent perspective.
Life-cycle costs play a vital role in the financial management of construction projects. They allow critical decisions to be made relating to longer-term costs that ultimately affect asset performance, longevity, disaster resilience and sustainability. As design, build and maintain (DBM) contracts become the norm, project owners and other key stakeholders are rewarded for shifting to this whole-life approach.
The current business model is highly transactional, providing little motivation for the hundreds of designers, contractors and suppliers to engage with each other at the early stages of a project. There is even less incentive to stay attached to, and learn from, the asset once it’s in use.
This leads to the repetition of the same mistakes and the failure to adopt best practices. It often also means the delivery of a sub-optimal end-product, low margins and, ultimately, a lack of industry investment.
For example, a study on the value of good design in the U.K. showed it could:
This becomes even more significant on mega-projects. Indeed, in infrastructure, the total cost of ownership is critical. Innovation in project delivery, such as Public-Private Partnerships (P3s) help to focus decisions on these broader issues and have a good track record of capital delivery success. Paradoxically, a recent study in the U.K. found that “48 per cent of key client programs across the industry do not consistently measure performance. In addition, 61 per cent do not take action to review procurement processes in light of lessons learned from past projects.”
How do we improve design to avoid these common pitfalls? It’s done by bringing people, processes and technology together – particularly during the initial phase of a project when all stakeholders can come together to set expectations and prudently review all alternatives, including the lowest initial cost and best value over the life of the asset.
Everyone benefits when at the outset, the stakeholders meet to engage on the key expectations and requirements of a project. For example, assessing wider metrics for business cases across whole life outcomes, design quality, program, capital cost and social value at the briefing will allow clarity for a value-based lens through which to make decisions.
Life-cycle costs play a vital role in the financial management of construction projects. They allow critical decisions to be made relating to longer-term costs that ultimately affect asset performance, longevity, disaster resilience and sustainability.
For stakeholders to apply a value-based lens on a project, we need standards to set benchmarks for comparison, a process to weigh and apply learnings and technology to gather the required data according to the benchmarks (many of the measures already exist).
We also need to share best practices with clients to educate them on the benefits of change, robust professional standards that will support those embarking on new ways of determining value and talent equipped to take advantage of this opportunity.
This focus on value would not end at the planning phase or even at the asset’s hand-off. It would lead to procurement decisions for both consultants, contractors and facility managers, to be made through the lens of whole-life value. This change is happening for megaprojects that are publicly owned, with stakeholders looking at the life-cycle cost of the asset to put offset costs into perspective.
The operations phase is the costliest stage of an asset’s life. The higher costs of green measures during construction are low in comparison to the savings they can deliver throughout the lifetime of an asset through energy use reduction, lower maintenance and renewal costs and improved productivity for occupants and users.
The construction sector is engaged in building assets of immense social value, with trillions of dollars being spent each year. In the planning phase, in the building phase, and throughout an asset’s life-cycle, listening to and learning from project stakeholders, experienced professionals and the public is an important way to ensure an asset is a positive addition to the built environment.
Anil Sawhney FRICS
Director of Infrastructure
Anil Sawhney is the Director of the Infrastructure Sector for the Royal Institution of Chartered Surveyors (RICS). He leads the emerging RICS initiative and strategy on placing and positioning the Institution within the field of commercial management of infrastructure projects globally. His primary focus is on the (economic) infrastructure sector, defined by the RICS as transport, utilities, energy and similar fields. Anil is involved in the production of infrastructure sector’s body of knowledge, standards, guidance, practice statements, education, and training. He’s also a Visiting Professor at Liverpool John Moores University in the UK. Dr Sawhney is also a Fellow of the Royal Institution of Chartered Surveyors (FRICS) and a Fellow of the Higher Education Academy (FHEA) of the UK. Anil has a rich mix of academic, research, industry and consulting experience gathered working in the USA, India, Canada, the UK, and Australia.