Whole life costing takes account of the total cost of a product or service over its life from determining the need for it through to its eventual disposal and replacement.
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 it. It is important therefore to take all these elements into consideration when making procurement decisions. As with other aspects of procurement, there will be a need to balance the work undertaken with the value and risk of the proposed procurement.
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 in, for example, major works projects. It should also be used, for example, to compare the costs of buying, renting or leasing an item of equipment.