BUILDING REFURBISHMENT & MAINTENANCE · TEROTECHNOLOGY •SCOPE OF TEROTECHNOLOGY –Selection & Provision of Permanent Assets Ensure selection based on best value rather than the

School of the Built Environment

BUILDING REFURBISHMENT & MAINTENANCE

TEROTECHNOLOGY

(Whole life costing)


OVERVIEW

• THE NATURE OF TEROTECHNOLOGY

• TYPES OF COSTS

• DISCOUNTING COSTS

• WHOLE LIFE CYCLE COSTS

• LIFE CYCLE COSTING TABLES

• SPREADSHEET ANALYSES


LEARNING OUTCOMES

1. Understand the basic principles of

terotechnology as applied to buildings

2. Understand the key components of whole life

costs and their application to maintenance

management.

3. Know how to use life cycle costing tables.

4. Understand and apply the principles of whole

life cycle costing for maintenance purposes

using a spreadsheet.


ESSENTIAL READING

• BSI (2008) BS ISO 15686-5:2008 Buildings & constructed assets — Service-life planning — Part 5:Life-cycle costing, British Standards Institution, London.

• BS 3843: Guide to Terotechnology - the economicmanagement of assets

• H-WU: Handout on Life Cycle Costing

• OGC Procurement Guide 07:Whole Life Costing and cost management.Available from:http://www.ogc.gov.uk/documents/cp0067.pdf


TEROTECHNOLOGY• DEFINITION: a combination of management, financial, engineering, building and other practices applied to physical assets in pursuit of economic life cycle costs.

The branch of technology and engineering concerned with the installation and maintenance of equipment.

• OBJECTIVES

• PRIMARY: Best Possible Value For Money from procurement and subsequent employment of asset

• SECONDARY: To achieve the Lowest Asset Cost Over Life Cycle – based on defined level of performance and expected life cycle


TEROTECHNOLOGY

• SCOPE OF TEROTECHNOLOGY

–Selection & Provision of Permanent Assets Ensure selection based on best value rather than the lowest cost. Cheaper may cost more to maintain over their life.

–Caring for Those Assets Whole life cycle costs can be reduced by extending the useful life of component by effective maintenance.


TEROTECHNOLOGY

• SCOPE OF TEROTECHNOLOGY

–Co-ordinating Assets to Help Achieve Overall Minimum Costs Over Their Life Cycle Having a proactive & complimentary approach to maintenance.

–Feeding Back Information To Improve Assets. Ensure costs effective decisions continue to be made at the capital acquisition/ procurement stage.


LCC / SERVICE LIFE PLANNING

Parts 1, 2, 3, 5, 6, 7 and 8


DEFINITION (LCC)

Life Cycle Cost: the total cost of a building or its parts throughout its life, including the costs of planning, design, acquisition, operations, maintenance (while fulfilling the performance requirements) and disposal, less any residual value.

Residual value: the value assigned to an asset at the end of the period of analysis.


DEFINITION (LCC)

Planning & design

Acquisition

Operations

Maintenance

Disposal


DEFINITION (LCC) Life costs:

• Acquisition.

• Servicing/ MoT.

• Fuel.

• Cleaning.

• Insurance/ road tax.

• Repairs/ replacements.

• Upgrades.

Residual value:

• Trade- in.

• Scrap value.


LIFE CYCLE OF AN ASSET


WHOLE LIFE COSTS (WLC)

Whole Life Costs: all significant and relevant initial and future costs and benefitsof an asset, throughout its life cycle, whilefulfilling the performance requirements.

Life Cycle Cost: the total cost of a building or its parts throughout its life, including the costs of planning, design, acquisition, operations, maintenance (while fulfilling the performance requirements) and disposal, less any residual value.


WHOLE LIFE COSTS (WLC)


DEFINITION (WLC)

In addition to the costs include;

Benefits:

• Taxi fares (revenue).

• Fuel savings (improved performance).

• Reduced tax (modified fuel).

• Advertising revenue.

• Trade- in/ scrap value.


WHOLE LIFE COSTS


WLC v’s LCC

• LCC: shorter time frame; aspect specific; typicallyfocused on costs.

• WLC: longer time frame; costs and benefits; wholeor through life performance.

However; they are often interchanged !


WHY USE LCC ?

• Typically used as a comparative tool.(danger in using absolute values ! )

• Evaluation of different investment scenario.(renew, rebuild, repair, rent/ buy etc.)

• Evaluation of different designs, components orsystems.

• Estimate future costs (running, installation ormaintenance).

• Comparison or evaluation of the effectiveness ofprevious decisions.


COMPONENTS OR STAGES OF THE LCC

• Decision to use – other tools available.(Value Engineering; investment appraisal; specialist contractor (procurement))

• Appropriate timing/ need – when/ where to use.

• Select ‘service’ life – based on what ?(manufacturers data; experience; test data)

• Select appropriate costs and timing.(acquisition, running, repair, maintenance etc.)

• Identify and quantify revenue/ savings or residual value.

• Select appropriate discount rate(s).


WHERE TO USE LCC

-Confidence +

in data


SCOPE TO INFLUENCE LCC ASSESSMENT

Maintenance


‘Bath tub’ failureThe bath tub represents the typical service life model for manycomponents or systems (buildings). In the early stages of lifethere is potentially a high risk of failure which level off,increasing again towards the end of the service life. Thefigure below shows the ‘bath tub’ failure.

22

BATHTUB FAILURE CURVE


Rates of deterioration

Different types of ageing

All materials, products and components age,figure below is a graphical representation ofdifferent types of ageing.

23

1. Ideal performance profile- there isno drop off in performance overthe life of the product. Howeverdue to natural deterioration,ageing and use this isunobtainable.

2. Abrupt- sudden failurefollowing a period of slow lineardeterioration in performanceover time. Associated withbuilding services materials andsystems.

3. Linear- typical failure of buildingmaterials which performeffectively and deteriorate over afixed period of time.

4. Exponential- this is typified bya slowing up of the rate ofdeterioration over the servicelife of the product.

5. Minimum acceptable standard-a level of life expectancy whichmust be obtained either due toeconomic, social,environmental or practicalreasons.

DIFFERENT TYPES OF AGEING


LIFE ! - BS Definitions

Service life: the period of time after installation during which a building or its parts meets or exceeds the performance requirements.

Reference service life: service life that a building or parts of a building would expect (or is predicted to have) in a certain set (reference set) of in-use conditions.

Estimated service life: service life that a building or parts of a building would be expected to have in a set of specific in-use conditions, calculated by adjusting the reference in-use conditions in terms of materials, design, environment, use and maintenance.

Design life: intended service life; expected service life; service life intended by the designer.

Predicted service life: service life predicted from recorded performance over time.

Forecast service life: service life based on either predicted service life or estimated service life.


LIFE AND MAINTENCE CYCLES (STANDARDS)• Types of services lives (organisational standard):

– Aesthetic

– Design

– Physical

– Economic

• Cyclic and routine maintenance:– Repairing

– Servicing

– Cleaning

– Restoring

– Replacing

• Sources of data:– Experience

– Manufacturer

– Testing/ modelling

– Measure and monitor

Acceptable performance level


MAINTENANCE LIFE CYCLES

KEY INFLUENCES

• Exposure (level of protection).

• Where in building.

• Use/ abuse.

• Material (expected service life).

• Finance !


DETERIORATION MECHANISMS

• Chemical

– Acids

– Alkalis

• Electromagnetic

– Solar radiation

• Mechanical

• Biological

• Hygrothermal

• Stress


DETERIORATION MECHANISMS


COSTS AND TIMINGS

• Sometimes known as forecasting/ service life planning.

• Sources for costs:- Experience.- RICS.- Contractors/ sub-contractors.- Cost books/ standard references.

• Timing of regular events:- Typically based on experience/knowledge.- May be determined by organisational standards (policy).

- Manufacturers literature.


Maintenance cycles – fabric


PLANNED MAINTENANCE BUDGET

DODGY SPIRES Ltd Planned Maintenance Budget for Year ending Dec. 20022012

January February March April May June July August September October November December TOTAL

Income

Monthly Alloc. £16,000.00 £15,000.00 £14,000.00 £13,000.00 £12,000.00 £11,000.00 £14,000.00 £14,000.00 £14,000.00 £14,000.00 £14,000.00 £14,000.00 £165,000.00

Expenditure

Cleaning £219.48 £285.05 £342.82 £521.83 £483.93 £514.04 £585.93 £408.62 £392.20 £274.38 £183.72 £143.57 £4,355.57

Building Repairs £134.08 £189.48 £175.83 £262.93 £234.84 £2,786.96 £3,164.93 £2,067.69 £1,262.22 £863.04 £673.82 £308.84 £12,124.66

Services Rep. £462.00 £427.00 £538.00 £657.42 £604.37 £687.52 £853.69 £634.62 £555.55 £375.58 £274.83 £186.95 £6,257.53

Heating £600.00 £600.00 £500.00 £400.00 £300.00 £200.00 £50.00 £50.00 £100.00 £569.35 £600.89 £602.34 £4,572.58

Lighting £326.97 £268.60 £578.85 £1,296.83 £1,073.93 £857.93 £1,146.95 £987.65 £1,276.42 £849.37 £654.32 £521.93 £9,839.75

Gas £230.45 £240.00 £186.58 £140.54 £100.98 £78.58 £50.67 £45.67 £78.78 £170.87 £203.67 £239.84 £1,766.63

Rates £120.00 £120.00 £120.00 £120.00 £120.00 £120.00 £120.00 £120.00 £120.00 £120.00 £120.00 £120.00 £1,440.00

Electricity £189.34 £178.63 £160.65 £150.34 £135.47 £125.45 £120.23 £166.48 £170.54 £180.45 £190.54 £210.21 £1,978.33

Wages / NI £52,027.80 £52,027.80 £52,027.80 £52,027.80 £52,027.80 £52,027.80 £52,027.80 £52,027.80 £52,027.80 £52,027.80 £52,027.80 £52,027.80 £624,333.60

Insurance £257.00 £257.00 £257.00 £257.00 £257.00 £257.00 £257.00 £257.00 £257.00 £257.00 £257.00 £257.00 £3,084.00

Administration £376.86 £376.86 £376.86 £376.86 £376.86 £376.86 £376.86 £376.86 £376.86 £376.86 £376.86 £376.86 £4,522.32

Water £200.00 £200.00 £200.00 £200.00 £200.00 £200.00 £200.00 £200.00 £200.00 £200.00 £200.00 £200.00 £2,400.00

Emergencies £200.00 £250.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £650.00 £0.00 £1,100.00

Ave. Exp. £4,257.23 £4,263.11 £4,266.49 £4,339.35 £4,301.17 £4,479.40 £4,534.93 £4,410.95 £4,370.57 £4,328.05 £4,339.50 £4,245.80

Total Exp. £55,343.98 £55,420.42 £55,464.39 £56,411.55 £55,915.18 £58,232.14 £58,954.06 £57,342.39 £56,817.37 £56,264.70 £56,413.45 £55,195.34 £677,774.97

Balance (£39,343.98) (£40,420.42) (£41,464.39) (£43,411.55) (£43,915.18) (£47,232.14) (£44,954.06) (£43,342.39) (£42,817.37) (£42,264.70) (£42,413.45) (£41,195.34) (£512,774.97)


DISCOUNTING COSTS OVER TIME

• Select appropriate discount (interest) rate.(typically between 1 and 5%)

Present value = Future value X 1/(1+r)n

Where: r = discount rate.

n = time in years.

• Apply discounted rates to all costs and aggregate.(Net present value, NPV)

• Select most appropriate (lowest LCC) option.

• Understand data !



Present Value (PV)

Example: You can get 10% interest on your money.

So $1,000 now can earn $1,000 x 10% = $100 in a year.

Your $1,000 now can become $1,100 in a year's time.


Present Value

Present Value (PV)

Example: You can get 10% interest on your money.

So $1,000 now can earn $1,000 x 10% = $100 in a year.

Your $1,000 now can become $1,100 in a year's time.


Calculate Future Payment


Future Back to Present


Present Value



Discount rates used to calculate NPV


LCC example of rainwater goods – 60yr


LCC example of rainwater goods

• Cheapest option may not have lowest LCC.

• May prove less expensive to replace at regularintervals rather than maintain.

• Care need with discounting and costs, minorchanges could influence results.

• There may be residual (scrap, recycling) value.(Aluminium (not included) could have high value)

• Financial costs may not include ‘environmental’ cost/ impact.


LCC graphical example

Windows Option Whole Life Cost

(Net Present Value discounted @ 6%)

0

100

200

300

400

500

6000 2 4 6 8

10

12

14

16

18

20

22

24

26

28

30

32

34

36

38

40

42

44

46

48

50

52

54

56

58

60

Time (years)

NP

V (

£)

Hardwood

Softwood

uPVC

Aluminium


LCC graphical example

0

2,000

4,000

6,000

8,000

10,000

12,000

1-6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Example of the future annual maintenance costs (NPV) associated with a school over 25 years.

£


DEALING WITH REVENUE

• Not normally included in LCC.

• Identify revenue stream, discount as costs and aggregate.

• Subtract from costs to generate modified NPV.

Example: £ (NPV)

Initial cost plus five yearly maintenance 65,000.00 costs for new external insulation system and double glazing package.

Energy savings (over 30 year predicted 13,000.00 life)

Modified LCC (WLC/ NPV) 52,000.00


OTHER INDICATORS/ MEASURES

• Payback period - the time it takes time for cumulative savings to offset the initial investment.(initial cost: £ 30,000; annual savings: £ 4,500; payback period = 30,000/4,500 = 6.7 say 7 years)

- Simple payback: no discount.- Discounted payback: uses NPV.

• Savings to investment ratio - (SIR) expresses the ratio of savings to costs. The SIR is calculated by dividing the present value of operating-related savings by the present value of the investment costs attributable to that option.


OTHER INDICATORS/ MEASURES

• Internal rate of return (IRR) - the compound rate ofinterest that, when used to discount the costs and benefits over the period of analysis, makes costs equal to benefits when cash flows are reinvested at a specified interest rate.When IRR is positive (+) investment is viable.

BUILDING REFURBISHMENT & MAINTENANCE · TEROTECHNOLOGY •SCOPE OF TEROTECHNOLOGY –Selection & Provision of Permanent Assets Ensure selection based on best value rather than the

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