RESEARCHING WHOLE LIFE VALUE

METHODOLOGIES FOR CONSTRUCTION

Das Mootanah1
1
Construction Industry Research and Information Association (CIRIA), Classic House, 174-180 Old
Street, London EC1V 9BP, UK

Whole life value (WLV) can be seen to encompass economic, social and
environmental aspects associated with the planning, design, construction, operation,
decommissioning and where appropriate, the re-use of the asset or its constituent
materials at the end of its useful life. WLV represents the optimum balance of
stakeholders' aspirations, needs and requirements, and the costs over the life of an
asset. Various methods, techniques and tools have been used for supporting whole-
life value principles in construction. Among these methods, whole-life costing, life-
cycle assessment, multi-criteria analysis, value and risk management are the most
prominent. This paper reviews these key methods and techniques in an attempt to
integrate the current thinking on whole life value. Building on these available
methods and techniques, the paper then introduces a research-in-progress, which is
reviewing whole-life thinking, concepts and methods outside construction in different
industry contexts that can be applicable to the construction industry.

Keywords: whole life value, whole life costing, risk and value, asset management,
innovation, technology transfer, cross-industry learning

INTRODUCTION
Construction investment and procurement decisions have been traditionally based on
initial capital costs. In recent years however the consideration of whole life costs and
to some extent a whole life value approach are becoming increasingly important in
investment decisions in the public sector and in the private sector. Various drivers for
this shift have come about as both public and private sector clients and their supply
chains increasingly recognise the greater benefits that can be achieved by adopting a
whole life and sustainable approach to construction. Indeed a recent National Audit
Office report (2005) states that design, procurement and decision-making need to be
based on whole life value. Whole life value represents more than just the costs
associated with the acquisition and operation of an asset.
Whole life value (WLV) encompasses economic, social and environmental aspects
associated with the design, construction, operation, decommissioning, and where
appropriate, the re-use of the asset or its constituent materials at the end of its useful
life. WLV takes account of the costs and benefits associated with the different stages
of the whole life of the asset. The WLV of an asset therefore represents the optimum
balance of stakeholders’ aspirations, needs and requirements, and the costs over the

1
[email protected]
Das Mootanah, CIRIA

life of the asset (Bourke et al. 2005). There will be trade-offs between the various
short-term project constraints (such as time, costs and quality) and the conflicts in
stakeholders’ longer-term interests and objectives.

DRIVERS FOR WHOLE LIFE VALUE

Public sector procurement
In the public sector, a series of initiatives and policy reviews have progressively
changed the approach of the public sector to procuring construction projects. These
initiatives directly affect the private sector as partners and suppliers to the public
sector. These include:
– Review of Civil Procurement in Central Government (Gershon 1999).
– Achieving Excellence in Construction (Office of Government Commerce 1999).
– Her Majesty’s Treasury Guidance Note 7 on Whole Life Costs (HM Treasury
2000).
– Building a Better Quality of Life (Department of Environment, Transport & the
Regions (DETR 2000) - promoting a sustainability agenda.
– The OGC Gateway™ Process (see www.ogc.gov.uk) and (OGC/NAO 2001).
– Best Value in Local Government (see www.bvpi.gov.uk)
– Modernising Construction (National Audit Office, 2001)
– Independent Review of Public Sector Efficiency (Gershon 2004) and
– The latest National Audit Office report: Improving public services through better
construction (NAO 2005).

PPP/PFI sector
In PPP/PFI procurement, the number of projects has increased steadily since 1997 to
over 600 projects (International Financial Services 2003) in different industry sectors.
PPPs are theoretically expected to deliver greater value for money than traditional
procurement methods, due to expected efficiency gains and reduction in costs
resulting from the sharing of knowledge and skills in design, construction and
operation. There is increased focus on service delivery over 25 to 30 years to a defined
standard based on outputs specifications and not just delivery of the asset or project.
Improvement in efficiency is expected by exploiting the private sector’s managerial
practices, ability to innovate and to take risks. Risk is transferred to the private sector
according to the principle of risk to be transferred to the party best able to manage it.
The private sector service provider is expected to provide innovative methods of
delivering the service, thereby reducing whole life costs. A clear understanding of risk
in conjunction with the enhancement of long term value in a PPP project is essential
for achieving value for money.

Private sector procurement

In the private sector, owners and clients have recognised the need to measure projects
on value rather than cost alone. The Latham report (1994) recommended that clients
should seek to evaluate all tenders on the basis of quality, likely cost-in-use, out-turn
price and known past performance as well as price. Then came 'Rethinking
Construction' (Egan 1998) which promoted the view that construction should be
designed and costed as a total package, including costs in use and final
 Researching whole life value methodologies for construction

decommissioning. The Construction Clients’ Forum (2000) wanted whole life costs to
be appraised and the supply chain to commit itself to build on time, to budget and
quality, and provide genuine value for money throughout the life of the construction.
Another initiative, 'Accelerating Change' (Strategic Forum 2002) stated that advice (to
clients) should cover a range of procurement and management options, including
environmental performance, operating and whole life costs.
However, despite the growing recognition by both public and private sectors to
consider a whole life and sustainable approach to construction, some clients are still
reluctant to go beyond the initial thinking.

KEY QUESTIONS FOR ACHIEVING WHOLE LIFE VALUE

WLV extends the scope of the appraisal process by focusing on more than just the
economic aspects of the costs associated with commissioning and operation of an
asset and helps the decision makers to consider all the competing factors that drive
value, including the values held by the different stakeholders. Stakeholder values
differ between different industry sectors and different stakeholders, and in practice it
is rare for each of these values to be given the same level of importance. Some key
questions need to be asked therefore when considering procurement by whole life
value.
Table 1: Key questions for whole life value (adapted from Bourke et al 2005)
Stakeholders Environmental sustainability
• Who are they? • Impact of asset on environment
• What are their requirements and roles? • How can any adverse impacts be
• Their expected degree of influence reduced/mitigated?
and involvement? • What is the cost and value of the impact?

Functionality End of life issues

• What is the business need? • What are the issues around decommissioning,
• What is the constructed asset for? potential re-use/recycling?
• What are the outputs required?
• What tasks does it need to facilitate? Cost
• What is the cost to build?
Performance and time • What is the cost to operate and maintain?
• Asset behaviour in use? • What is the cost of renewal/disposal?
• How long does it need to last? • How reliable are the whole-life data used (e.g.
assets’ service lives, maintenance and renewals
Risk regimes?)
• What are the risks?
• Who will manage the risks and costs? Inputs v/s outputs
• How realistic are the assumptions? • What are the inputs required?
• What is the balance of inputs, outputs and
outcomes?
• Does this balance provide VFM in the long term?

These questions may look simple in their formulation but they are fundamental to
achieving WLV at any stage in the creation, development, construction, operation and
decommissioning of an asset. Depending on the stage in the life cycle of the asset,
answers to these questions will vary in their depth and complexity, and multiple
methods and techniques can be used to aim for and achieve WLV.
Das Mootanah, CIRIA

KEY METHODOLOGIES, PROCESSES AND TECHNIQUES

The key methodologies and techniques supporting WLV currently include whole life
costing (WLC), life-cycle assessment (LCA), value management (VM), risk
management (RM) and multi-criteria assessment (MCA). WLC deals primarily with
financial costs, whereas LCA deals primarily with environmental impacts.
Individually, WLC and LCA cannot comprehensively cover all financial,
environmental, social costs and benefits associated with achieving the best WLV.
MCA is used in conjunction with WLC, LCA and VM to evaluate alternative options
based on criteria developed with stakeholders. VM and RM processes are used as
group decision processes to engage stakeholder participation for achieving WLV.

Whole life costing and life cycle assessment methods

Whole life costing is the 'economic assessment considering all agreed projected
significant and relevant cost flows over a period of analysis expressed in monetary
value. The projected costs are those needed to achieve defined levels of performance,
including reliability, safety and availability' (ISO 2004). A WLC model looks at costs
incurred from inception to disposal, that is the total costs associated with the
procurement, use during service-life, and disposal at the end of life. Such a model
invariably includes cost of finance, capital costs (design and construction costs),
operational and maintenance costs, occupancy costs, costs of disposal or renewal of
the assets. However one has to allow for risks in modelling assumptions made in the
estimation of asset costs in the long term, discount rates used, missed components in
the analysis, wrong service lives of components, wrong costs etc.
LCA is 'a systematic set of procedures for compiling and examining the inputs and
outputs of materials and energy and the associated environmental impacts directly
attributable to the functioning of a product or service system throughout its life cycle'
(ISO 1998).

Risk management processes

Risk management is the systematic process of identifying and managing risks and
opportunities for a project or business (Godfrey 1996, and many others). Many
techniques are available for identifying, assessing and managing risks throughout a
project’s life. Typically participants in a project or business would address the
management of risk through successive stages. Participants first need to brainstorm
risks and opportunities by a suitable creative technique, then assess their probabilities
of occurrence and consequences through (i) a qualitative approach involving simple
scales for prioritising risks, and/or (ii) a quantitative approach involving modelling
and simulation, taking account of Optimism Bias (OB).
The Green Book (HM Treasury 2003) requires that OB be taken into account when
assessing the costs of risks at the early stages of project development. OB takes
account of a systematic tendency by project appraisers to be over optimistic when
estimating benefits and tend to understate timings and costs, both capital and
operational. To redress this tendency, appraisers should make adjustments by
increasing the cost estimates and decreasing, and delaying the receipt of, estimated
benefits. The Green Book also recommends that sensitivity analysis be used to test
assumptions about operating costs and expected benefits.
After the assessment, a risk mitigation and contingency plan will normally be
developed and risk ownership will be determined according to the capability of the
risk owner(s) to bear specific risks and costs involved. The likely deliverables of such
 Researching whole life value methodologies for construction

a risk management process include, depending on the depth of the RM study and
techniques used a detailed risk register, including all risks identified, probabilities,
consequences, cost impacts/allocations, mitigation actions to be monitored
periodically.

Value methodologies
Value Management (VM) is a structured, systematic and participatory decision-
making process to develop best-value optimum solutions, to ensure client’s objectives
are achieved with stakeholders’ buy-in. VM evolved from Value Engineering (VE)
which originated during the Second World War at General Electric and is nowadays a
proven management process used internationally in many industries such as
construction, services, government, and manufacturing.
BS EN 12973 (2000) defines VM as a style of management, particularly dedicated to
motivating people, developing skills and promoting synergies and innovation, with the
aim of maximising the overall performance of an organisation. Applied at the
corporate level, value management relies on a value-based organisational culture
taking into account value for both stakeholders and customers. At the operational
level (project oriented activities) it implies, in addition, the use of appropriate methods
and tools.
In the construction industry context, VM can be defined as a structured approach to
defining what value means to a client in meeting a perceived need by establishing a
clear consensus about the project objectives and how they can be achieved
(Connaughton and Green 1996). Value Engineering is incorporated into Value
Management as a systematic approach to delivering the required functions at lowest
cost without detriment to quality, performance and reliability. Function Analysis is
one of the fundamental techniques involved in a VE study. Its purpose is to develop a
systematic breakdown of functional requirements, concentrating on the actual needs,
aspirations and wants of the client and project stakeholders. A VM study can be
applied at varying stages of a project but for best results, a study should be done early
in the planning/concept stage to ensure that the best project strategy is adopted, to
reduce uncertainty and identify future opportunities. VM involves all relevant
stakeholders sitting in the same room and making informed decisions in a rational way
and achieve consensus under the guidance of an expert facilitator through successive
collaborative workshops.
A recent research (Thomson et al 2003), the VALiD Framework
(www.valueindesign.com) helps project stakeholders discuss value by helping them
understand the influence of their values over their judgements of WLV. In this
framework, value is represented by the stakeholders’ collective judgements of the
extent to which the entire project’s benefits and sacrifices are represented, compared
with the targets set. Approaches to delivering WLV need to help each stakeholder
make structured assessments of the value (to them) of the built product and the
services it supports. These assessments can be shared by the project team during
design and construction to help guide their decision-making process.

Integration of methodologies
In recent years, methodologies for the integration of value and risk management have
been developed for understanding, optimising, communicating and tracking the
different perspectives of value and risk throughout all project development phases.
(Mootanah, 1998, 1999, 2004; Green 2001; Cruickshank 2003; Weatherhead et al.
Das Mootanah, CIRIA

2005). Indeed risks can be assessed, modelled, costed, shared, transferred and
managed out, but they cannot be considered in isolation from the other factors that
contribute to achieving whole life value.
Similarly, the integration of whole life costing and life cycle assessment presents a
powerful route to obtain best value solutions in both financial and environmental
terms, to contribute to achieving sustainable development. There is commonality in
some of the issues considered in both techniques, leading to synergies in the analysis,
but also potentially to conflicts between the conclusions resulting from use of each
technique. Generally these are minimised when the techniques are used jointly from
the outset on a project (Bourke et al. 2005).
As argued above, the relevant questions and attributes for whole life value involve
invariably: people/stakeholders and theirs needs, wants and aspirations; functionality
and business needs; whole life costs, performance and reliability; risk and value
issues; environmental sustainability; the 'optimal' balance of inputs, outputs and
outcomes. It is useful therefore to integrate the current thinking on whole life value
concepts and methods in construction with other industries' practices that could be
applicable or transferable to the construction industry context.

WHOLE LIFE VALUE MANAGEMENT ACROSS INDUSTRIES

Past examples of management methodologies, techniques and practices transferred
between industries are wide-ranging. For example, the Critical Path Method (CPM)
developed in the late 1950s by DuPont and Remington Rand Univac to co-ordinate
complex plant maintenance projects. The Program Evaluation and Review Technique
(PERT) was developed as a project planning tool as part of the Polaris submarine
program. Adaptations of these tools have been in use in different industries such as
construction, transport etc for a number of years. Value engineering originated during
the Second World War at General Electric and has evolved into different applications
in industries such as transport, construction, and manufacturing. Risk analysis
principles from Oil & Gas ventures have been adapted to other industry contexts such
as construction and railways.
Different industries such as railways, building & construction, highways, water,
aerospace, manufacturing, oil & gas have been applying varying infrastructure asset
management principles to their operations for years to increase profitability, better
manage activities, achieve efficiency gains and plan for long-term growth. A recent
comparison between the aerospace and construction industries exemplified the
opportunities for learning across industries while recognising the contextual nature of
management knowledge and experiences (Green et al 2004). Many industries
commissioning, owning and managing infrastructure assets face issues that are often
similar to one another, although in different contexts. The constant drive for efficiency
savings and safety performance targets in the rail industry calls for improvements in
not only project procurement but also more importantly in whole life asset
performance. Improvement in asset performance has to contribute not only to strategic
objectives of regulators and infrastructure owners, but should demonstrate positive
impact on user's experience of the network. In the Local Government arena, the need
to demonstrate value for money and best value in procurement of services is a major
driver to have asset management plans in place.
On the other hand, infrastructure owners are struggling with challenges such as
escalating maintenance costs, lack of reliable knowledge of asset condition and
 Researching whole life value methodologies for construction

performance at a given time, and varying infrastructure management processes for

their different contexts. Asset owners are therefore recognising the benefits of
managing assets along whole-life principles: effective and efficient infrastructure asset
management and whole-life costing are becoming increasingly important in any
owner's investment decisions.
There is a need for a holistic approach that can bring significant whole life value, and
more effective infrastructure asset management in the long term.
A CIRIA research project (2005) is looking at whole-life infrastructure management
strategies, processes, plans, methods and techniques that are used in the different
industries. The focus is on whole life approaches to infrastructure asset management
through the life of an asset from creation to end-of life/disposal, including asset
acquisition, maintenance, operation, upgrading, disposal and renewal. Current
industry practices will be benchmarked and case-studies of lessons learnt will be
documented for different industries. The industries covered include building &
construction, railways, highways, water and potentially aerospace, oil & gas and
defence. The areas of research cover: asset management strategy and planning, whole
life value methodologies, investment optimisation, life-cycle data requirements,
performance, risk, reliability, availability, maintenance management methods, service
life predictions, security and business continuity processes, and barriers and enablers
to more efficient and effective asset management.
The project is reviewing and building on previous relevant research and standards.
The research methodology is based on a mixed methodological approach (drawn from
methodological pluralism) including: a broad literature review, semi-structured
interviews with practitioners in different industries, benchmarking current practices
and processes, and elaborating case-studies in different contexts to build
understanding and learning between the different industries.
The literature review in progress and current discussions with practitioners are looking
at issues such as:
• the different definitions used in different industries
• business-related issues (reconciliation/trade-off of short-term business aims with
whole life thinking)
• views of asset management (whole-view, systems approach, wider aspects)
• monitoring predictability, performance and reliability (asset lives, obsolescence,
inputs v/s outputs and outcomes)
• levels of asset management (strategic and tactical levels, transferability of
practices between industries without losing context)
• the determination of best practice (benchmarking or other methods and the
inherent limits), amongst other issues and research questions to be identified.

CONCLUSIONS
In response to many drivers through the recent years, different processes, methods,
tools and techniques have been developed to enhance the understanding of whole life
value thinking in both the public and private sectors. However their applications
depend on the circumstances of projects and requirements of the authorities or clients
involved. This paper covers very briefly the existing key methodologies, processes
Das Mootanah, CIRIA

and techniques that can support whole life value thinking in construction and looks at
integrating the thinking further with relevant knowledge and practice from other
industries. The aims, scope and methodology of inquiry of a current research by
CIRIA are explained. The research will identify opportunities for the transfer of
technology and innovations in whole life value thinking across industries without
losing contextual industry knowledge.

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