This briefing note uses an accounting framework, the life-cycle costs approach (LCCA), to explain the main cost components for water and sanitation in rural and peri-urban areas. The briefing note explains the building blocks used in the LCCA, then shows how this approach estimates the true cost of extending sustainable and good quality water and sanitation services to the poorest. The LCCA approach provides the most useful answer to: "What is the cost per year per person of delivering clean water and good sanitation services?" Detailed cost breakdowns are available in the annex.
- The costs needed to provide a sustainable service are likely to be considerably higher than the reported costs.
- Generally, fixed asset accounting has become accepted as the most suitable approach to determining total costs of asset-intensive sectors like water and sanitation.
- Existing cost data refers to the 'as designed' service and rarely explores the 'actual' costs that people pay for real services received.
- In reality, many hand pumps only last three to five years instead of the 20-year-design lifespan.
- Service level analysis can lead to a more nuanced understanding of where underlying problems of coverage and slippage may lie in water and sanitation.
- The life-cycle cost approach needs to be done with care since service levels might not be cost-sensitive due to other external variables.