Transcript Contract Management Workshop

Capturing whole life costs
Rob Allan
13 August 2008
Whole Life Costing
Whole Life Costing (WLC) = taking into
account and evaluating the Social, Economic
and Environmental impacts of a product or
service - the total ‘cost’ of the solution
(This may be also referred to as “Life Cycle Analysis”
or “Total Cost of Ownership”)
A Whole Life Cost Model
S
O
P
A
P = Procurement costs
A = Acquisition costs
O = Ownership costs
D = Disposal costs
S = Sustainability assessments
Whole Life Cost = (P + A + O + D) + factor to represent S
D
A whole life cost model
Sustainability costs and benefits
In addition to direct costs we need to
consider Sustainability costs and benefits:
• Social costs & benefits
• Economic costs and benefits
• Environmental costs and benefits
All three areas need to be considered to be
able to evaluate the true WLC of a
contract.
Risk based approach
Why a risk approach?
Barriers to obtaining sustainability costs:
• Generic sustainability questions produced
different answers
• Suppliers differing approach to
sustainability was difficult to evaluate
• Legal requirement to specify requirements
relevant to the nature of the contract
A risk based approach
Solution:
• A risk based approach has been adopted to
identify the key sustainability risks
• Risks are identified which are relevant to the
contract output
• Specification used to seek proposals to
minimise or remove the risks
Procurement Risk Log
The risk log takes into account the following:
• Legal risks
• Contractual risks
• Financial risks
• Political & reputational risks
• Technological risks
• Economic Risks
• Environmental Risks
• Social Risks
Risk Log
Example
Procurement of office stationery:
Risks:
(social) products supplied are linked to child labour
(economic) difficult for local businesses to bid
(environmental) products have no or minimal recycled
content
Costs: (social) reputational damage
(economic) money going out of economy
(environmental) contributor to climate change
Tender needs to address:
(social) bidders ethical credentials and that of their
suppliers
(economic) requirements split into lots
(environmental) request recycled products
Questions