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Capturing whole life costs

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

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  1. Capturing whole life costs Rob Allan 13 August 2008

  2. 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”)

  3. 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

  4. A whole life cost model

  5. 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.

  6. Risk based approach

  7. 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

  8. 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

  9. 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

  10. Risk Log

  11. 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

  12. Questions

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