Understanding the Real Value and Cost of a Building

It is unwise to base design and specification decisions for buildings solely on the basis of lowest construction cost. We can create better buildings by taking a ‘life cycle costing’ approach, whereby a small additional upfront cost (or sometimes no upfront cost) can mean a lower life cycle cost and a much improved building with health, wellbeing and productivity benefits for users. Anthony Waterman, Managing Director of ADW Developments, explains.

In recent years, the appreciation of a ‘whole life’ approach is becoming the accepted and correct way to design, build and operate our buildings. A ‘whole life’ approach takes a longer term and more holistic view and to save money and create better buildings we need to assess alternative designs and show which are best. This type of approach is recognised in government and public procurement programmes, and also in the procurement undertaken by private sector clients, both large and small. The adage “I’m not rich enough to buy cheap things” is one we do well to remember.

Life cycle costing is about understanding initial capital costs and future operational costs

Life cycle costing is a central part of a ‘whole life’ approach to design and specification. Life cycle costing enables the creation of comparative cost assessments over a specified period of time, considering relevant economic factors in terms of initial capital cost and future operational costs.

It is a tool to estimate the total cost of ownership over the anticipated lifespan of an asset. It takes into account the future spending needed to maintain or operate an asset, operational and the end-of-life cost.

So why is life cycle costing important, aside from the obvious comparative cost analysis? Firstly, it encourages a discussion about the durability of materials and components at the outset of the project. It forces the team to consider the life cycle impact and behaviour of a component, and how that fits with the overall design. It facilitates a discussion between the client, designer and the project team on the expected use of the building, how this meets the business and operational needs of the occupier or potential occupier, and how flexible or adaptable this needs to be.

A life cycle costing exercise can also help generate the business case for the what can sometimes be a more capital intensive clean technology or green design feature. For example, investing in a highly energy efficient design may add to initial costs but provide a financial payback due to lower running costs, as well as the associated benefits of lower environmental impact and healthier indoor environments.

Life cycle costing can also facilitate innovative approaches to building design, proving the business case for a perhaps less orthodox design.

One of the particularly valuable aspects of a life cycle costing exercise is that it places an emphasis on the collection of accurate data on actual performance and operation compared with predicted performance. This can be highly valuable for future planning and for benchmarking the performance of one building against an industry standard. This can be particularly useful for clients with larger property portfolios, or at industry and sector level to help smaller clients.

Most of all, life cycle costing facilitates and encourages value decision making based on ‘value’ and real payback, rather than immediate capital cost. When combined with an understanding of the carbon footprint and environmental impact of a building, life cycle costing can be a hugely powerful tool to prove the financial case for sustainable buildings. This is the reason why sustainability standards such as BREEAM have adopted life cycle costing. BREEAM schemes now include a provision for a competent expert to carry out a life cycle costing exercise. There are similar requirements in other international sustainability standards such as LEED and Estidama.

Understanding the combined financial and carbon implications of a building design can be hugely powerful, and help drive investor interest, as well as being better for the eventual occupiers and users of the built asset who will ultimately inherit a better performing building.

Looking to the future, we will realise even greater value using life cycle costing if we can get more occupiers and building managers engaged in post-occupancy evaluation of buildings. Post-occupancy evaluation gathers detailed information on the performance aspects of the building and also looks at occupier feedback and satisfaction. There is a great opportunity to link occupant feedback to inform future design and construction choices, and that is something that will benefit us all.

Read More – Life Cycle Costing in BREEAM

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