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GREEN CONCEPTS – IV June 19, 2010

Filed under: LEED GA - EXAM PREPARATION — Anindya & Navaneethan @ 12:57 am
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cost

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LEED GA exam requires you to understand certain basic concepts pertaining to Green Buildings. Types of Costs involved in buildings and construction, is one of those.

People say, everything has its own cost. Yup, that’s right! For construction industry it is absolutely true. Knowing that ‘Own Cost’ is a critical step in each project. The owner should know what is the right amount to invest in a project, a contractor should know how much to quote in the bid and a designer should know how much to charge for his service. Here we are not going to discuss on how to derive those costs, instead, just going to get acquainted with some common terminologies used in the industry in relation to costs. Some of those are,

HARD COSTS:

  • These are basically purchase price of hard asset such as land, building, inventory, equipment or building
  • These are different from accounting, financing, banking or legal cost.

SOFT COSTS

  • This term implies those costs which are not considered as direct construction cost.
  • Soft costs include architectural, engineering, financing, and legal fees, and other pre- and post-construction expenses.

LIFE CYCLE COSTS :

All of us want to invest in profitable projects. But to achieve that we need to answer certain questions Honestly. What are the costs involved in the project? what is the expected return?; what is the expected date of return?; what are the risks involved? Are risks worth taking for the amount of return expected? I know, answering these questions are not easy. But remember, there is always a smarter way to do things. In this section, we are going to go discuss about a broader economic assessment method called, Life Cycle Costs (LCC).

Life Cycle Costs considers all types of costs involved in a project to calculate the total cost to the Owner/Investor. Business-Dictionary defines Life Cycle Costs as follows,

Sum of all recurring and one-time (non-recurring) costs over the full life span or a specified period of a good, service, structure, or system

It includes purchase price, installation cost, operating costs, maintenance and upgrade costs, and remaining (residual or salvage) value at the end of ownership or its useful life. This actually helps the owner to make decision based on the value of investment, not the initial cost of the investment. It will become much more easier to understand, if we go through an example.

EXAMPLE:

Think…Which one is better?

Material ‘M’ : It costs $5000, has a life of 5 years and $100/year maintenance cost

or

Material ‘N’ : It costs $ 7500, has a life of 10 years and $100/year maintenance cost

NOTE : Life of the structure using the material is 30 years.

1. If we use material M, then we have to replace the material at the end of every 5 years. Also we have to spend $100 every year for maintenance.Therefore at the end of 30 years the amount spent on material M would be,  

    LCC= Initial Cost + Maintenance Cost + Replacement Costs.

    LCC= $5000 + 100*30 + 5*5000= $33,000

2. If we use material N, then we have to replace the material at the end of every 10 years. Also we have to spend $100 every year for maintenance.Therefore at the end of 30 years, the amount spent on material N would be,

   LCC = Initial Cost + Maintenance Cost + Replacement Costs.

   LCC = $7500 + 100*30 + 2*7500 = $25500.

Conclusion: Though the initial investment on product N is more, in the long run it is more valuable to the owner than the material M.

If you want to read more about Life Cycle Costs, please follow this link.

We always welcome comments and suggestions. We will be happy to know, how you like this article.

Greenprep Blog Administrators.

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