Cost—Effective
Last updated: 04-03-2007
Overview
"We no longer build buildings like we used to, nor do we pay for them in the same way. Buildings today are... life support systems, communication terminals, data manufacturing centers, and much more, They are incredibly expensive tools that must be constantly adjusted to function efficiently. The economics of building has become as complex as its design." (Wilson, in foreword to Ruegg & Marshall, 1990)
Every owner wants a cost-effective building. But what does this mean? In many respects the interpretation is influenced by an individual's interests and objectives.
- Is it the lowest first-cost structure that meets the program?
- Is it the design with the lowest operating and maintenance costs?
- Is it the building with the longest life span?
- Is it the facility in which users are most productive?
- Is it the building that offers the greatest return on investment?
While an economically efficient project is likely to have one or more of these attributes, it is impossible to summarize cost-effectiveness by a single parameter. Determining true cost-effectiveness requires a life-cycle perspective where all costs and benefits of a given project are evaluated and compared over its economic life.
In economic terms, a building design is deemed to be cost-effective if it results in benefits equal to those of alternative designs and has lower life-cycle costs. For example, the HVAC system alternative that satisfies the heating and cooling requirements of a building at the minimum life-cycle cost, is the cost-effective HVAC system of choice.
The federal government has numerous mandates that define program goals with the expectation that they be achieved cost-effectively.
The challenge is often how to determine the true costs and the true benefits of alternative decisions. For example, what is the economic value in electric lighting savings and productivity increases of providing daylight to workplace environments? Or, what is the value of saving historic structures? Alternately, what is the cost of a building integrated photovoltaic system (BIPV), given that it may replace a conventional roof?
The following three overarching principles associated with ensuring cost-effective construction reflect the need to accurately define costs, benefits, and basic economic assumptions.
- Utilize Cost Management and Value Engineering Throughout the Planning, Design, and Development Process
As most projects are authorized/funded without a means of increasing budgets, it is essential that the project requirements are set by considering life-cycle costs. This will ensure that the budget supports any first-cost premium that a life-cycle cost-effective alternative may incur. Once a budget has been established, it is essential to continually test the viability of its assumptions by employing cost management throughout the design and development process. An aspect of cost management is a cost control practice called Value Engineering (VE). VE is a systematic evaluation procedure directed at analyzing the function of materials, systems, processes, and building equipment for the purpose of achieving required functions at the lowest total cost of ownership. - Use Economic Analysis to Evaluate Design Alternatives
In addition to first costs, facility investment decisions typically include projected cost impacts of, energy/utility use, operation and maintenance and future system replacements. At the beginning of each project, establish what economic tools and models will be used to evaluate these building investment parameters. The methodologies of life-cycle cost analysis (LCCA) will typically offer comparisons of total life-cycle costs based upon net present values. Other methods usually used as supplementary measures of cost-effectiveness to the LCCA include Net Savings, Savings-to-Investment Ratios, Internal Rate of Return, and Payback. - Consider Non-Monetary Benefits such as Aesthetics, Historic Preservation, Security, and Safety
Most economic models require analysts to place a dollar value on all aspects of a design to generate final results. Nevertheless it is difficult to accurately value certain non-monetary building attributes, such as formality (for example, of a federal courthouse) or energy security. The objective of a LCCA is to determine costs and benefits of design alternatives to facilitate informed decision-making. Costs can be more readily quantified than benefits because they normally have dollar amounts attached. Benefits are difficult because they often tend to have more intangibles. In some cases, these non-monetary issues are used as tiebreakers to quantitative analyses. In other instances, non-monetary issues can override quantitatively available cost comparisons, for example, renewable energy application. These cost-effectiveness principles serve as driving objectives for cost management practices in the planning, design, construction, and operation of facilities that balance cost, scope, and quality.
Note: Information in these Cost-Effective pages must be considered together with other design objectives and within a total project context in order to achieve quality, high performance buildings.
Major Resources
Mandates
- Code of Federal Regulations, 10 CFR 436.a
- Executive Order 13423, "Strengthening Federal Environmental, Energy, and Transportation Management"
- National Energy Conservation Policy Act
- OMB Circular A-94—Guidelines for Benefit-Cost Analysis of Federal Programs
WBDG
Design Objectives
Aesthetics, Productive, Secure / Safe, Sustainable
Project Management
Project Planning, Management, and Delivery
Publications
- A Guide to Integrating Value Engineering, Life-Cycle Costing and Sustainable Development Federal Facilities Council, 2001.
- Air Force Military Construction and Family Housing Economic Analysis Guide 1996.
- Building Economics for Architects by Thorbjoern Mann. New York: Van Nostrand Reinhold, 1992. ISBN 0-442-00389-7.
- Building Economics: Theory and Practice by Rosalie Ruegg and Harold Marshall. New York: Van Nostrand Reinhold, 1990. ISBN 0-442-26417-8.
- Facilities Standard for the Public Buildings Service, P100 (GSA)—Chapter 1.7 Life-Cycle Costing
- GSA LEED® Cost Study
- Life-Cycle Costing Manual for the Federal Energy Management Program (PDF 9.73MB, 224 pgs) NIST HB 135 1995 Edition.
- NAVFAC Economic Analysis Handbook 1993.
- Project Estimating Requirements, P120 (GSA)
- Standards on Building Economics, 5th ed. ASTM, 2004. ASTM Stock #: BLDGEC04, ISBN# 0-8031-3148-8.
