LIFE CYCLE COSTS METHODOLOGY

Overview

An intervention that looks affordable at construction can be expensive to own. The life cycle costs methodology exists to prevent that discovery being made after the commitment, by requiring the cost side of an assessment to be built over the whole life of the intervention and over every category of cost that life actually contains.

What it covers

The methodology defines the cost categories to be counted and the boundary within which they are counted. Beyond initial capital expenditure it covers design and preparation, land acquisition and compensation where relevant, construction and installation, operation and maintenance across the service life, monitoring and inspection, periodic renewal or replacement of components, and decommissioning or the treatment of the asset at the end of the period. It also covers the indirect costs that fall on third parties, such as changes in land use or in access, which are frequently borne by someone other than the body paying for the intervention.

It sets out how the costs are expressed. Because the categories are incurred at different times and over different periods, they are brought to a common basis so that a measure with a high initial cost and a long life can be compared with one that is cheap to build and expensive to run. It defines the treatment of the discount rate and of the time horizon, and requires both to be stated rather than assumed.

The methodology also addresses the question that a Nature Based Solution makes unavoidable: what counts as the asset. An intervention that consists of restoring a wetland, changing agricultural practice across a catchment and reconnecting a floodplain has no single construction contract, and its costs are distributed across landowners and agencies. The methodology provides a structure for attributing those costs and for stating where the attribution is uncertain.

How it is used

The result is a cost profile over the life of the intervention, in a form that can be combined with the benefit side of the economic framework. It is applied in the demonstration areas where an intervention has been costed, and it is the reference for the unit and methodology work on the costs of infrastructure.