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.
The sector has developed a Tender Evaluation Model for use when making procurement decisions. It incorporated whole life costing methods as part of its evaluation process and uses net present value calculations to display the costs of various options under consideration in the decision making process. As well as the full financial cost (over the life of the requirement) of procuring the required goods or services, the model recognises that there are three other basic elements that should influence the decision:
- qualitative judgements
- fitness for purpose (technical specification)
- sustainability (environmental and social)
Using the Model to combine these four elements, you can make procurement decisions based on a clear understanding of the needs and preferences of the users and the full costs of the proposed acquisition. There will be occasions when, due to budgetary pressures, users will choose to base a decision on initial capital cost rather than whole life costs.
The Model is designed to ensure that the final decision is explicitly based on the needs of the users and the whole life of the proposed acquisition. By using it, you will have an audit trail that provides explicit reasons for your decision.
You can download the Tender Evaluation Model by clicking here.