Whole-Life Cost: The Expense of Life-Cycle Ownership

Whole-life cost (WLC) is an important concept in economics and asset management that encompasses the total financial expense of owning an asset over its entire life. This concept takes into account the asset’s purchase and installation costs, design and building expenses, anticipated running costs, maintenance, financing fees, depreciation value, and ultimate disposal costs. This set of calculations is significantly different from what most organizations consider when budgeting for an asset in that the focus is on initial costs only.

One of the most critical aspects of WLC is that it allows organizations to weigh current- versus future-term costs. This brings immense value when analyzing a range of options that vary in purchase cost, longevity, and maintenance costs. For example, seeking out energy-efficient technology may be initially more expensive than conventional products, yet can offer significant returns over the items' lifetime as energy costs can account for a substantial portion of an asset’s running costs. Simply considering initial costs will not make this distinction clear, but WLC does. As such, WLC is a powerful tool for budget optimization.

In addition to the financial aspects of WLC, there are also environmental and social considerations that should be taken into account. Environmentally, part of the cost of an asset includes its disposal and the raw materials used in its production – both of which could come with significant environmental costs. Socially, the cost of labor and standards expected by workers to construct the asset may be far greater than originally estimated. As such, WLC helps organizations to factor in any expectations related to social and environmental impacts in a more accurate way opposed to simply approximating them.

In sum, WLC allows organizations to diligently weigh their monetary, social and environmental expenses associated with the life-cycle of an asset in a more organized manner. Gaining a full and unchanging understanding in this area will allow organizations to better allocate budget and spend appropriately and sustainably.