Whole Life Cycle Costing -

A Workshop based on the AMA

Diploma Course

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INTRODUCTION

• Shawn Boast – Town Of Oakville

Manager of Asset Management

• Rhonda Harris – AMCL (Asset Management Consulting Ltd)

Principle Consultant

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 Asset Management

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 What Asset Management is

A culture that will facilitate the developing a

set of planned actions enabling assets to provide
the desired level of service in a sustainable way,
while managing risk at the lowest lifecycle cost.

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 Whole
Life Cost

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AMA Diploma Modules

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Understanding Whole Life Costs

1. Overview of Lifecycle Costs and how to use them

2. Building WLC models
3. Model building best practice
4. Developing the WLC model template
5. Modelling Asset Degradation & Costs of Failure
6. Option Comparison using WLC models
7. Other WLC factors
8. Next steps

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SESSION 1
Overview of Lifecycle Costs
and how to use them

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Review of the Asset Life-cycle

• What are the key stages of the asset life-cycle?

• What are the main activities and decisions at each
stage?

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Whole-life costs – why don’t we use them?

Why do you think it is rare for organisations to explicitly look at

previous operating costs (operations, maintenance, disposal/ life,
reliability, refurbishments, etc) when:
• Selecting the technical option for building a new asset
• Designing an asset
• Procuring a component

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Overview of life-cycle models

• What are the key elements of cost in a whole life

cost model?
• What drives these costs?

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 Indicative Whole Life Costs (WLC)
1108/01

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Different types of assets

• How do different asset classes differ from each other – for

example in their typical life, why we replace them,
maintenance approach, operating costs?
• What are the differences between asset classes you are
familiar with?

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The uses of WLC models

• What do we use WLC models for?

• Would you model all assets a company owns?
• If not, how would you choose which assets to model?

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 Calculating the Optimum Life

1
5
1124/01

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 Whole-life Cost Analysis – example summary
1126

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 The same model graphically
1128

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 Optimal year of replacement
1129

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BUILDING WLC MODELS

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WLC Modeling

• Components of the WLC Model

– Capital/One Off Costs – original costs of asset – engineering,
capital costs, etc.
– Renewals – actual/projected cost for asset (or component)
renewal
– Operations – yearly operations costs – labor and materials
– Planned Maintenance – yearly scheduled, planned activities
– Reactive Maintenance – unscheduled corrective/reactive
activities
– Risk based on Asset Failure – cost associated with the risk of
failure of the asset
– Training and Change Management – initial O&M training plus
any additional ongoing training activities (often overlooked)

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Building up the costs

• Taking the costs on your own WLC worksheet, you could link
them into your summary worksheet
• How would you build up these costs in the first place?

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Unit cost – ‘all-in’ costs

• Given other information about costs:

– Total hours of maintenance carried out in the organisation
in one year
– Overheads
• Calculate the unit cost of maintenance in the organisation
• Add into your model to give more accurate planned
maintenance costs

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Example Maintenance Schedule

Planned maintenance for a train coach involves the following 3

activities:
• 6 monthly deep cleaning.
– Each cleaning activity requires 2 cleaners and takes 30 minutes to
finish. Consumable cleaning material is also required at a cost of £25 / activity.
• 2 yearly electrical maintenance.
– Each electrical maintenance requires 2 technician and takes 1 hour to finish. At
height work is required and a mobile extendable working platform (MEWP) can
be hired at a hourly rate of £500.
– During the maintenance, any problem identified will be fixed
immediately. Estimated material cost for immediate repair or replace is £100 /
activity.
• 5 yearly full serviceability test.
– A team of 1 supervisor and 5 technicians is required for a full serviceability test. A
full test will last for approximately 1 hour per coach.

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Hourly rates – direct and indirect labour costs

Hourly labour rates (‘unit costs’) are defined as following:

Hourly
Labour Code
Rate
Technician £20

Supervisor £50

Cleaner £10

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Planned Maintenance – Cost Summary

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MODEL BUILDING BEST PRACTICE

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Components of a mathematical model

• You have been asked to undertake a simple projection of

future demand, given data on historical data – how would you
go about it?
• What else would you need to know and include to model
demand?

• What are the key components of any model that you build?

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Key Components of a Model

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Some rules for model creation in a spreadsheet

1. List all your sources

2. Rules for Inputs
– ‘Hard coded’ data and/or assumptions only. No links and no
calculations allowed. Data source to be written at the top of the
tab
3. Rules for Calculations
– Links and formulae only. No hard coded data allowed, except for
field / column names
4. Rules for Outputs
– Links only. No formulae allowed, except for table sums. No hard
coded data allowed, except for field / column names
5. Think Traceability – Traceability - Traceability

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Applying Best Practice

• If you haven’t already done this, reformat your WLC template

applying modelling best practice….

• Hint – keep it very simple – do not over-complicate

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Determining the best option

• You have the details of 3 options for an ageing asset:

increasing planned maintenance, a partial refurbishment, and
replacement, including complete costs for each option per
year for next 10 years
• How would you present this to convince top management to
go with the optimal option?

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DEVELOPING THE WLC MODEL
TEMPLATE

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Capital costs

• How do you go about estimating the cost of a capital project

to build or install a new options?
• What costs do you need to add to purchase price of a
component to give you its total upfront cost?

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Optimum year of replacement

• The ‘optimum life’ of an asset is when it has the lowest average

annual cost
• With planned maintenance costs already calculated, and the
purchase price of £1M to put in your model, calculate the
optimum year of replacement
• What answer do you get? Why?

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Net Present Value

• Add in Net Present Value to your template, given a discount

rate of 5%
• Hint: yes, it’s a formula in Excel!

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MODELLING ASSET DEGRADATION &
COSTS OF FAILURE

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Asset Degradation

• As an asset ages, or its cumulative utilisation grows, what

changes can you expect to see in its behaviour?
• Taking one class of asset that you are familiar with, what
happens to its probability of failure over time?
• What costs would you associate with failure?
• How would you build this into a model?

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Costs Related to Failure

• To build failure-related costs into the model, you need to

include:
– The average cost to repair
– The average consequential cost of failure
– The failure rate as it changes over the life of the asset
• Making a starting assumption about the way the train coach
deteriorates and the failure cost data provided, build risk costs
into your model
• Keep best practice in mind and keep it simple
• What difference does that make to optimum economic life?
• What happens to the optimal life if you change the
deterioration rate?

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OPTION COMPARISON USING WLC
MODELS

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Whole life costs and options evaluation 1

• If you want to compare different capital options on the basis

of whole life costs, how would you do this?
• How would you go about comparing two different strategies
for the same asset?
• Hint: to compare options, you have to determine the economic
asset life of both options first

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Running Scenarios

• If you had the choice of increasing your initial investment by

10% for a reduction in annualised planned maintenance of
30%, how would you use the model to determine if this
provides value for money?
• Run this scenario – is it a good or bad option?
• How would you determine the tipping point of increased
upfront cost against reductions in maintenance costs?

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Keeping track of scenarios

• You now have multiple model ‘scenarios’ based on your initial

model
• How will you remember what you changed, and the
assumptions you made, in six months’ time?.....
• What can you do in practice to ensure you know (and
remember) the changes between scenarios

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Replacement

• How would you use the model to show the effect of replacing
an asset early or replacing it later?
• How would you present the results?

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Building site and systems models

• How should we go about building up site or system models

from individual asset class models?

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WLC EXERCISE

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Exercise - Build a WLC model - Oakville Parks Washrooms

Shawn Boast - Basic Information on the Town of Oakville Parks

Washrooms

• Take the Parks Washroom asset assigned to your table

• Considering the major activities used to manage this asset,
build a rough whole-life cost model for it on paper and/or on
the Excel spreadsheet provided

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Spreadsheet template

• You have been given a WLC template paper and spreadsheet

form
• You are now going to start building on this to provide a
template for key costs and risks
• Once you have built your WLC Model in the template, draw a
graph to indicate the costs and optimum renewal (similar to
the ones shown below)

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 Whole-life Costs: a summary output

Year

Costs 1 2 3 4 5 6 7 8 9 10 11 etc.

Capital cost

Operational

Planned
maintenance

Reactive
maintenance

Other costs of
asset failure

Total costs
per year

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Report Out

• One person to volunteer to explain their WLC model to the

whole group

• Each Table will report out their WLC information for the
Oakville Parks Washroom assigned to their table

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OTHER WLC FACTORS

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Brainstorm other factors

• What other asset related or financial factors could you

consider in your WLC model?

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Using it in practice

• Taking the outline you drew out at the beginning of the day
for the WLC for the asset we gave you, build this into your
template
• What does this suggest for its overall WLC?
• What does this still require to calculate optimum economic
life?

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SUMMARY

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Key Concepts:

• Whole life cost models need to use consistent ‘unit costs’ so

that different options can be compared
• WLC models need to capture all significant risks as well as
costs across the lifecycle
• The ‘optimum economic life’ of an asset is the point at which
the total costs to provide the required level of service are
lowest – and this is understood by calculating how the
average annual cost overall changes with age

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