Is the Construction Industry Resisting Lifecycle Cost Decision Metrics?
September 09, 2013
A recent Environmental Leader article claims that decision-makers at many organizations are faced with budgetary restrictions that often hinder the adoption of the best suited technology or project, even when the better solution will cost less over the long haul.
In fact, the article sites research (to be published in October) by Frost & Sullivan and Continental Automated Building Association (CABA) that indicates that purchases in the smart buildings industry are more often made based on past vendor relationships or lowest first costs rather than on a true evaluation of lifecycle costs. The article further alleges that lifecycle costs are used “irregularly and infrequently” during the design process.
While there are certainly some sectors that have been slow to adopt it as a key decision-making metric, I reject the premise that lifecycle cost evaluation is losing relevance. In our experience, the majority of key decision-makers are factoring in lifecycle costs, and those who don't will soon wish they had.
The reason why is simple:
Rebates, Deregulation and a Hedge Against Cost Spikes
Public utility rebates exists because public utility commissions mandate that a percentage of rate-payer dollars be used towards conservation. The primary objective of this effort is to control demand costs by immediately reducing load demands and minimizing the impact of heavy loads on the grid until generation capacity can increase through investment.
However, as utility markets deregulate, private companies are selling power directly to customers, and owners who make first-cost decisions at the expense of efficiency will pay a lot more money down the road during peak loads.
In other words, a first-cost strategy for building efficiency is roughly the equivalent of buying a gas-guzzling car that is less expensive. You'll save a small amount of money in the short term, but will spend significantly more every time disruption in the market or increased demand causes the price of fuel to jump. With nobody regulating the market, those first-cost savings will quickly be eaten up by higher ongoing costs.
At Trane, we work with our clients to identify the energy conservation measures (ECM) that will most cost-effectively deliver improved results. We also help clients identify possible rebate opportunities and leverage such opportunities to maximum benefit. But rebates are just one factor.
Lifecycle cost is at the heart of the Trane High Performance Buildings approach. We help customers develop best practices and achieve improved efficiency by selecting solutions that complement the overall business mission of the building owners and/or operators.
The Trane approach to lifecycle management begins with shifting attitudes about day-to-day maintenance away from a reactive, “fix what’s broken” mindset to a proactive approach. This shift in thinking, coupled with technology-enabled best practices, helps building owners and operators to achieve and maintain high performance buildings outcomes with reduced lifetime costs to operate the asset.
The article does point out the need for greater industry education about the benefits of lifecycle costing in the planning and design phases of building and renovation projects. On that we agree.
In the meantime, working with a trusted energy services partner can help ensure that decision-makers within your organization understand the lifecycle costs and are armed with the data they need to make the best possible investments for the future.
Click here to learn more about the Trane approach to lifecycle management.