Whole life costing takes account of the cost of a product or service over its full productive life span right through from determining the need to its eventual disposal and replacement.
A number of considerations need to be made prior to, during and after the purchase of goods and/or services and should be included in any business case pertaining to their acquisition.
For equipment, for example, it would include the costs of maintaining and operating the product as well as its outright purchase, hire or lease price; the cost of consumables, utilities, training; and the cost of disposal at the end of its life. In some case the elements that are difficult to calculate are: life expectancy, accuracy, ease of use and speed.
For services, costs such as full budget costs, overtime, staff training need to be considered when evaluating a service contract and comparing in-house costs against those of buying in the service from an external provider.
Research has shown that the purchase cost of equipment is often only a small proportion of the costs of operating it. Likewise, the costs of running and maintaining an office building are about 200 times the cost of building itself. It is important therefore to take all these elements into consideration when making procurement decisions.
Whole life costing should be applied at a strategic level to assess different options (for example, do nothing, new build or refurbishment) as part of an options appraisal exercise. It should also be used to compare the costs of buying, renting or leasing an item of equipment.
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