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This Brieing Note is also available or download rom the WASHCost website at: www.washcost.ino/pubs

Lie-Cycle Costs Approach

Glossary and cost components

Catarina Fonseca, Richard Franceys, Charles Batchelor, Peter McIntyre,

Amah Klutse, Kristin Komives, Patrick Moriarty, Arjen Naas, Kwabena

Nyarko, Christelle Pezon, Alana Potter, Ratna Reddy, Mekala Snehalatha

IRC International Water and Sanitation Centre

April 2010

Brieng Note 1


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Brieng Note 1

Contact details author

Catarina Fonseca, [email protected]

Front page photo

Catarina Fonseca

Copyright 2010 IRC International Water and Sanitation Centre

This work is licensed under a Creative Commons license.


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WASHCost Lie-Cycle Costs Approach April 2010

Table o contents

Lie-cycle costs approach 3Dening lie-cycle costs (LCC) and lie-cycle costs approach (LCCA) 3

Cost components 4

Sources 5

Annexes 6

List o tables

Table 1: Checklist lie-cycle cost components water 6

Table 2: Checklist lie-cycle cost components sanitation & hygiene 10

Abbreviations, acronyms, and terms

CapEx Capital Expenditure

CapManEx Capital Maintenance Expenditure

CoC Cost o Capital

DST Decision-Support Tools

ExpDS Expenditure on Direct Support

ExpIDS Expenditure on Indirect Support

LCC Lie-Cycle Costs

LCCA Lie-Cycle Costs Approach

MIS Management Inormation Systems

OpEx Operating and Minor Maintenance Expenditure

WASH Water, sanitation, and hygiene


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Brieng Note 1

Lie-cycle costs approach

Lie-cycle costs reer to the costs o ensuring adequate water, sanitation, and hygiene (WASH) services to a specicpopulation in a determined geographical area, not just or a ew years, but indenitely. They include not only the

costs o constructing new systems but also what it costs to maintain them in the short and long term and at higher

institutional levels. Costs or both district and national level administration and planning are taken into account, as

well as the costs o replacing and extending inrastructure. This brieng note describes the costs denitions used in

WASHCost.

Dening lie-cycle costs (LCC) and lie-cycle costs approach (LCCA)

Lie-cycle costs (LCC) represent the aggregate costs o ensuring delivery o adequate, equitable and sustainable WASH

services to a population in a specied area. These costs include the construction and maintenance o systems in the

short and longer term, taking into account the need or hardware and sotware, operation and maintenance, capital

maintenance, the cost o capital, source protection, and the need or direct and indirect support, including training,

planning and institutional pro-poor support. The delivery o sustainable services also requires that nancial systems

are in place to ensure that inrastructure can be replaced at the end o its useul lie and to extend delivery systems in

response to increases in demand. This is the lie-cycle at the heart o this approach - what is needed to sustain, repair

and replace a water (or sanitation) system through the whole o its cycle o wear, repair and renewal.

Collecting and understanding these costs is a primary aim o the WASHCost project. However, the lie-cycle costs

approach (LCCA) goes beyond achieving the technical ability to quantiy and make costs readily available. It seeks to

inuence sector understanding o why lie-cycle costs assessment is central to improved and sustained service deliv-

ery and to inuence the behaviour o sector stakeholders, so that lie-cycle unit costs are mainstreamed into WASHgovernance processes at all institutional levels rom local to national to international. WASHCost aims to increase the

ability and willingness o decision makers (both users and those involved in service planning, budgeting and delivery)

to make inormed and relevant choices between diferent types and levels o WASH service.

A signicant element o the LCCA is an understanding that costs can only be compared and properly assessed when

they are related to particular levels o service. WASHCost specically aims to draw attention to the LCC o pro-poor

WASH services delivery, including water or small-scale productive uses.

WASHCost aims to help national and decentralised sector bodies to embed an understanding and use o lie-cycle

costs so that this approach becomes institutionalised, owned and actively used within countries and internationally,

and that national bodies develop and maintain their own LCC databases and incorporate them into management

inormation systems (MIS) and decision-support tools (DST).

Short defnitionsLife-cycle costs (LCC) represent the aggregate costs o ensuring delivery o adequate, equitable and sustainable

WASH services to a population in a specied area.

The life-cycle costs approach (LCCA) seeks to raise awareness o the importance o lie-cycle costs in achieving

adequate, equitable and sustainable WASH services, to make reliable cost inormation readily available and tomainstream the use o LCC in WASH governance processes at every level.


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Cost components

The main components o lie-cycle costs being proposed by WASHCost are the ollowing:

Capital expenditure hardware and software (CapEx)

The capital invested in constructing xed assets such as concrete structures, pumps and pipes. Investments in xed

assets are occasional and lumpy and include the costs o initial construction and system extension, enhancement

and augmentation.

CapEx sotware includes one-of work with stakeholders prior to construction or implementation, extension, en-

hancement and augmentation, (such as costs o one-of capacity building).

Capital maintenance expenditure (CapManEx)

Expenditure on asset renewal, replacement and rehabilitation costs, based upon serviceability and risk criteria. Cap-

ManEx covers the work that goes beyond routine maintenance to repair and replace equipment, in order to keep

systems running. Accounting rules may guide or govern what is included under capital maintenance and the extent

to which broad equivalence is achieved between charges or depreciation and expenditure on capital maintenance.

Capital maintenance expenditures and potential revenue streams to pay those costs are critical to avoid the ailures

represented by haphazard system rehabilitation.

Cost of capital (CoC)

The cost o capital is the cost o nancing a programme or project, taking into account loan repayments and the cost

o tying up capital. In the case o private sector investment the cost o capital will include an element distributed as

dividends.

Operating and minor maintenance expendure (OpEx)

Expenditure on labour, uel, chemicals, materials, regular purchases o any bulk water. Most cost estimates assume

OpEx runs at between 5% and 20% o capital investments. Minor maintenance is routine maintenance needed to

keep systems running at peak perormance, but does not include major repairs.

Expenditure on direct support (ExpDS)

Includes expenditure on post-construction support activities direct to local-level stakeholders, users or user groups.

In utility management, expenditure on direct support such as overheads is usually included in OpEx. However, these

costs are rarely included in rural water and sanitation estimates. The costs o ensuring that local government staf

have the capacities and resources to help communities when systems break down or to monitor private sector per-

ormance are usually overlooked.

Expenditure on indirect support (ExpIDS)

This includes macro-level support, planning and policy making that contributes to the service environment but is

not particular to any programme or project. Indirect support costs include government macro-level planning and

policy-making, developing and maintaining rameworks and institutional arrangements, and capacity-building or

proessionals and technicians.

The detailed elements or each o the cost components are listed in the annexes.


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Brieng Note 1

Sources

Franceys, R. ; Perry, C. ; Fonseca, C. (2006). Guidelines for user fees and cost recovery for water, sanitation and irrigationprojects. IRC/Craneld report or the Arican Development Bank. Unpublished.

Fonseca, C. (2007). Quantifying the costs of delivering safe water, sanitation and hygiene services: an overview of cost

ranges and trends. IRC report or the Bill and Melinda Gates Foundation. Unpublished.


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Brieng Note 1

Lie-cycl

ecost

components

Resources

Inrastructure

Demand/Acc

ess

CapExSo

tware

One-ofworkwith

stakeholdersprior

toconstructionor

implementation,

extension,

enhancem

entand

augmenta

tion

-Costoresourceassessments:

resourceassessmentsan

daudits

(qualityandsaeyield)to

identiy

source(s),specialistanalysis,

useoGISandremotelysensed

data,groundtruthosec

ondary

inormation

-Designcosts:sourcep

rotection

measures,acilitationo

stakeholder

participation

-Regulationcosts:esta

blishment

ogroundwaterprotec

tionzones,

sanctuariesand/orstra

tegic

reserves

-CostsoInormation,

Education

andCommunication,

institutional

developmentandcap

acity

building

-Costocompensation

orpeople

movedordamsorpr

otection

zones

-Inrastructureassessmentcosts:

Assessmentothesta

tusoexisting

inrastructure

-Demandassessmentscosts:assessment

ocurrentandutureseasonaldemands

orallusesandusersthataccessWASH

inrastructure

-Engineeringdesigncosts:Costso

preparingGISbasedm

apstosupportand

underpindesignandplanningprocesses,

technicalsurveys,etc

-Costsoactivestake

holder

participation:acilita

tedmulti-level

planning

-Costsousingspecia

listknowledge:

scenariobuildingasa

nintegralpart

oplanningprocess,m

odelingand

orecastingsupplyanddemand

-CostsoIEC,

institutionaldevelopment

andcapacitybuildin

g

-Costsordemandcreationorimproved

services:constructionoshowcasesites,

exchangevisits

-Costopurchasinglandonwhichto

locateWASHinrastructure:e.g.private

operatorbuyingland

-Costsoactivestakeholder

participation:e.g

buildingand

supportingcommunitylevel

organisationsthatparticipatein

stakeholder-drivenplanningprocesses,

acilitatingplanningprocessesetc

-Costsousin

gspecialistknowledge:by

userstodesig

ninrastructurethatthey

und

-CostsoIEC,

institutionaldevelopment

andcapacity

building:skillsneeded

aspartodev

elopingandsustaining

community-levelorganisations,inusers

O&Mactivitie

setc

CostsoC

apital

-Costointerestpaym

ents:e.g.,

WorldBankloans

-Costointerestpaym

ents:WorldBank

loans,personalloans(e.g.orsmall-scale

privateserviceprovid

ers)

-Costointerestpayments:Personal

loans(e.g.ho

useholdconnections),

micronance

(eitherpersonalorgroup/

communityb

ased)


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Lie-cycl

ecost

components

Resources

Inrastructure

Demand/Acc

ess

OpEx

Operating

and

minormaintenance

expenditures

-Costomaintainingstructures

listedinCapEx

-Costsoenorcingregu

lations

relatingtopollutionan

d

groundwaterprotectio

nzones,

transport,ground-waterlevel

recordersetc

-Possiblepaymentsto

landusers

underpaymentorenvironmental

servicesschemesaimedat

maintainingwaterqua

lityosurace

orgroundwaterresour

ces

-Costorrawwaterabstraction

(e.g.operatorpayingregulatory

authorityorabstractin

gwater)

-Fortriangulationpurposes:

governmentsubsidies

-Costooperatingan

dmaintaining

inrastructurelisted

inCapEx

-CostsoO&M:electricityoruel,water

man/waterwomenco

sts,repairs,spare

parts

-Costsoemergencyorback-upsupplies:

Paymentstovendors

orarmersor

emergencywatersu

pply

-Costsomonitoring

-Rentoland(e.g.priv

ateoperatorpaying

orlanduse)

-Costorusingosystem(e.g.operator

payingdistrictormun

icipalityoruseo

inrastructure)

-Costsobillingscheme:meterreading,

meterrepair,

billingsystem,debtcollection

-Costocomplaints/b

reakdownsystem:

ensuringthatdemandsaremet365

days/year,ensuringnormsareachieved,

breakdownnoticatio

nandresponse

system

-Costsoenorcingregulations:checking

meters,checkingorillegalconnectionsor

wateruses,pollutionm

onitoring

-Costsoleakdetection:reducing

unaccountedorwate

r(UAW)

-Fortriangulationpu

rposes:government

subsidies

-Costotrans

port(paymentorcart,

buckets,etc)

-Thecostincurredtocomplementthe

service:cost

oltration/treatment(i.e.

consumables

,chloride,buckets,

uelor

boilingwater

)

-Thecostincurredtosupplementthe

service:cont

ributiontoOpEx,costso

alternativeso

urces

-Fortriangulationpurposes:prot

marginothe

operator

CapManE

x

Assetrenewal,

replaceme

ntand

rehabilitat

ioncosts

-Costorehabilitating

orrepairing

structuresparticularly

ater

extremeeventsuchas

cyclones

-Costsorehabilitatin

g,renewingor

replacinginrastructure

-Costsorehabilitating,replacingor

renewinginrastructureincurredby

users


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Brieng Note 1

Lie-cycl

ecost

components

Resources

Inrastructure

Demand/Acc

ess

Expenditureon

directSupport

(ExpDS)

Post-const

ruction

supportac

tivities

orlocal-le

vel

stakeholders,usersor

usergroup

s

-Costsosupportingcommunity-

basedorganisations:

watershed

managementcommitt

ees,ensuring

womenandpoorparticipate

activelyinmeetings

-Costsosupportinglocal

governments:specialistsupportat

alllevels,

local-levelartisansupport

-Costsolong-termresource-

relatedIECandcapac

itybuilding

programmes

-Othergovernmentde

partments

(e.g.pollutioncontrol,planningetc)

-Costsosupportingcommunity-based

organisations:water

usercommittees,

sanitationandhygien

egroups,ensuring

womenandpoorparticipateactivelyin

meetings

-Costsosupportinglocaland

intermediatelevelgovernment

institutions:specialis

tsupportatalllevels,

local-levelartisansup

port

-Costsolong-termin

rastructure-

relatedIECandcapa

citybuilding

programmes

-Othergovernmentd

epartments(e.g.

State-governmentWA

SHdepartments)

-CostsopostconstructionIECactivities

incurredbyu

sers

Expenditureon

IndirectS

upport

(ExpIDS)

Macro-levelsupport,

planninga

ndpolicy

making

-IWRMcosts:inter-sect

oralplanning

andmanagementore

sources

atdierentscales,alignmento

theseplans,sharingo

inormation,

managingacommoninormation

base,ensuringecologicalowsare

maintained

-Monitoring(atsource

)costs:

waterqualityandquan

tity

monitoringnetworks,waterquality

laboratoriesandinob

ases

-ITsystemsandsuppo

rtcosts:

CostsocapacitybuildinginIT

systems,developingan

dupgrading

ITsystemsetc

-Othergovernmentde

partments

(e.g.

nance,planningetc

-IWRMcosts:inter-sec

toralplanning

andmanagementowater,power

etcinrastructuresatdierentscales,

alignmentotheseplans,sharingo

inormation,managin

gacommon

inormationbase,ens

uringecologicalows

aremaintained

-Monitoring(atpoint

osupply)costs:

waterqualityandqua

ntitymonitoring

networks,waterqualitylaboratoriesand

inobases

-ITsystemsandsupportcosts:costso

capacitybuildinginIT

systems,developing

andupgradingITsyst

emsetc

-Othergovernmentd

epartmentsdealing

withwater(e.g.nan

ce,planning,

education,

health,etc

)

-NGOcostsorsuppo

rtingthesector


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Brieng Note 1

Lie-cycl

ecost

components

Resources

Inrastructure

Demand/Access

CapExSo

tware

One-ofworkwith

stakeholdersprior

toconstructionor

implementation,

extension,

enhancem

entand

augmenta

tion

-Costoenvironmentalimpact

assessments:EIAandaudits(quality

andquantity)toidenti

ysaedisposal

(sites),specialistanalysis,useoGISand

remotelysenseddata.A

lsoincludes

assessmenttopreventsuraceor

groundwaterpollution

bypoordesign

orconstructionoon-sitesanitationor

drainagesystems.

-Inrastructureassessmentcosts:assessmentothestatu

so

existinginrastructure

-Demandassessm

entscosts:assessmentocurrentanduture

(seasonal)demandsorallusesandusersthataccesssanit

ation

inrastructure

-Demandcreation

costs:awarenessraising,socialmarketing,

socialmobilisation

-Designcosts:acilitationostakeholderparticipationin

alternativedesigns

-Engineeringdesigncosts:costsopreparingGISbasedm

aps

tosupportandun

derpindesignandplanningprocesses,

technicalsurveys,

etc

-Costsorhygienicbehaviorchange:costsorcampaigns

orhandwashing,

saesanitationbyall,etc.T

hesecouldbe

relatedtoCommu

nityLedTotalSanitationprogrammesand/or

attemptstoreach

NGPstatus(India).

-Costsoactivestakeholderparticipation:acilitatedmu

lti-

levelparticipation

indemandcreation,

demandassessment,

planning,etc

-Costsousingspecialistknowledge:e.g.scenariobuildingas

anintegralparto

planningprocess

-CostsoIEC,

insti

tutionaldevelopmentandcapacity

building:ordesign/implementation/managemento

(alternative)techn

ologies

-Regulationcosts:saetyduringconstruction

-Costsopurchasinglandonwhichtolocatewastewater

inrastructure

-Costsorhygienicbehavio

rchange:

communityinvestmentinca

mpaigns

orhandwashing,saesanitationby

all,etc

-Costsoactivestakeholder

participation:buildingcom

munity

levelorganisationsorpartic

ipationin

demandcreation,demanda

ssessment,

planning,etc(e.g.

ODFstrategies)

-UsercostsoIEC,

institutio

nal

developmentandcapacity

building:

especiallyinskillstomaintainbehavior

change,maintainingon-site

sanitation

acilities

CostsoC

apital

-Costointerestp

ayments:WorldBankloansandothers

-Costointerestpayments:

personal

orgrouploansore.g.

house

hold

latrinesandothermicronance

schemesrelatedwithsanitation


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