Life Cycle Costing

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RICSRESEARCH

LIFE CYCLE COSTING

OF SUSTAINABLE DESIGN

Professor John Kelly

Dr Kirsty Hunter

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© RICS – February 2009

ISBN: 978-1-84219-436-2

Published by: RICS, 12 Great George Street, London SW1P 3AD United Kingdom

The views expressed by the author(s) are not necessarily those of RICS nor any body connected with RICS. Neither the author(s), nor RICS accept any liability arising from the use of this publication.

This project was funded by the RICS Education Trust and RICS Scotland QS and Construction Faculty Board with the aim of developing a methodology for life cycle costing of sustainable design.

About the authors

Professor John R Kelly BSc MPhil PhD MRICS TVM FHKIVM

Professor Kelly, currently chairman of the consultancy Axoss Ltd and visiting professor at Nottingham Trent University and Hong Kong Polytechnic University, is a chartered surveyor with industrial and academic experience. His quantity surveying career began with a national contractor, moving to a small architects practice and later to an international surveying practice. His academic career began at University of Reading as a research fellow, moving to Heriot-Watt University as a lecturer and later senior lecturer and finally to Glasgow Caledonian University where he held the Chair of Construction Innovation until November 2007. His research into value management and whole life costing began in 1983 and has been well supported by grants from both public and private sector. He has published 4 books and 8 research monographs and technical manuals.

Kirsty Hunter BEng PhD

Following completion of her PhD degree in value management at Glasgow Caledonian University, Kirsty has pursued a career in the NHS and has experience of working in various management roles including project management and research management at Health Facilities Scotland, the Health Protection Agency and University Hospital Birmingham. During her time as a research associate Kirsty worked on a variety of construction related research projects and through the dissemination of her research achieved two best paper awards at international conferences, a highly commended Emerald journal award, and the 2006 Herbert Walton award for best doctoral dissertation in project management.

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Executive summary

‘‘

Sustainable development presumes a whole systems approach that considers the environmental, social and economic issues of any design decision. Any model or tool which assists decision makers in reaching the best sustainable option must make explicit the complexity of the problem and the trade-offs and potential synergies which exist within these three facets of sustainability. The optimal sustainable development solution is one which balances the total economic cost and social change together with the inevitable environmental consequence but ensures that scarce resources are not squandered, either deliberately or through ignorance. Sustainable development is variously defined but this research relies on the Brundtland definition "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to

meet their own needs”

This research considers only the economic dimension of evaluating a sustainable design. The research project began from the premise that whilst much is said about the economics of sustainable projects there is no standard method of measurement of life cycle cost and currently option appraisals are being carried out with no consistent approach to the parameters of the calculation. This research project focuses on deriving a standardised approach to the life cycle costing of the sustainable design of buildings. The specific aim was to design a method with general applicability to building projects focusing on insulation, controlled ventilation, micro and biomass heating and electricity generation. The methodologies of life cycle costing (LCC) are well understood but the rules of their application in option appraisal are not. The cost of carbon and the issues surrounding embodied energy were investigated without reaching a satisfactory conclusion. The current (October 2008) cost of a carbon offset is approximately £20 per tonne but prices vary according to the scheme supported. There is an important and unanswered question as to whether carbon counting is a valid component of life cycle costing. The approach advocated in this research is to focus on the proper evaluation of efficient design and on-site renewable energy generation.

The research highlighted the importance of recognising the two primary reasons for undertaking life cycle costing, namely:

• to predict a cash flow of an asset over a fixed period of time for budgeting, cost planning, tendering, cost reconciliation and audit purposes and

• to facilitate an option appraisal exercise at any of the six identified levels of study (evolved during this research) in a manner that allows comparison. This will also include benchmarking and tender comparisons.

Examples were seen during the research of calculations conducted in different ways using different methodologies, different time scales, and making many different assumptions with regard to particularly fuel inflation.

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Executive summary

This report outlines studies of sustainable design, on-site micro energy generation, methods of data gathering and data analysis and the methods of measurement with associated rules and definitions. A draft of these rules and definitions was passed to BSI and BCIS to inform the document “Standardised Method of Life Cycle Costing for Construction: UK supplement to ISO 15686 Part 5 life-cycle costing for buildings and constructed assets”. The rules and definitions governing the approach to LCC should be considered the biggest contribution to surveying made by this research. Whilst generated by research into sustainable energy and design, these rules have general applicability.

Finally, it was observed throughout this research that rules of thumb concerning sustainable design and micro energy generation are difficult to evolve. Innovative design solutions have been used to substantially reduce a project’s carbon footprint. These design solutions do not need to cost more; it is a gross over simplification to say that a sustainable design will add 10% or 15% to the cost of the building. This logic comes from addition thinking i.e. here is a designed office building, house or school, how much extra will it cost to modify the design to include for example convection powered ventilation? Design has to be based on a clear briefed concept and a value system dictated by the client; addition thinking is entirely the wrong approach. Also it was observed that on-site, micro energy solutions are difficult to justify on economic grounds. If micro energy benefits are to be measured then a currency other than money has to be used.

Contact

John Kelly

School of Built and Natural Environment Glasgow Caledonian University

Glasgow G4 0BA Scotland

email: [email protected]

Acknowledgements

This project was funded by the RICS Education Trust and RICS Scotland QS and Construction Faculty Board with the aim of developing a methodology for life cycle costing of sustainable design.

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01 Background 06

1.1 Sustainable development 06

1.2 Preliminary work 06

1.3 Aims and objectives 07

02 Background to life cycle costing 07

2.1 Costs 07

2.2 Life 09

2.3 Data 10

2.4 Discount rates 11

2.5 Review of ISO/FDIS 15686-5:2006 (E) 11

2.6 A review of existing methods and models 13

2.7 Rules 14 03 Rules 15 3.1 Introduction 15 3.2 General rules 15 3.3 Formulae 16 3.4 Purpose of calculation 17

3.5 Method of measurement of components 17

3.6 Method of measurement of systems 17

3.7 Method of measurement of single unit items including energy 17 04 Checklist for data gathering at component and system levels 18 05 A methodology for undertaking life cycle costing of sustainability projects 20

5.1 Introduction 20

5.2 Step 1 – project identifiers 20

5.3 Step 2 – study period 20

5.4 Step 3 – Inflation rate and discount rate 20

5.5 Step 4 – gather data 20

5.6 Step 5 – model construction and analysis 24

5.7 Illustration 1 – component cash flow 24

5.8 Illustration 2 – system cash flow 25

5.9 Illustration 3 – option appraisal with a base case 26

06 Conclusion 32

6.1 Conclusion to the research project 32

6.2 Final comments 33

6.3 Recommendations for further research 34

Appendix 1 – Glossary of terms 35

Appendix 2 – The sustainable design checklist 37

Appendix 3 – Renewable energy technologies 41

References 51

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01 Background

1 Background

At the RICS Scotland Quantity Surveying and Construction Faculty Board (QSCFB) conference on 30th September 2005 three speakers addressed the subject of sustainability at both a macro and micro level. A recurring theme was the lack of a standard methodology for representing costs and benefits. Howard Liddell, an RIAS 4 star accredited sustainable design architect and winner of an RICS sustainability award in 2003 for the Glencoe visitor centre, challenged the surveying profession to be more explicit with regard to the costs associated with sustainability. A subsequent Faculty Board debated the issues raised addressing the topics of the macro – economic implications of the expansion of Scotland’s renewable energy and a life cycle costing approach to project based sustainable design, particularly for ventilation, heating and electricity generation. It is the latter topic which was considered to be of immediate importance.

1.1 Sustainable Development

Sustainable development presumes a whole systems approach that considers the environmental, social and economic issues of any design decision. Any model or tool which assists decision makers in reaching the best sustainable option must make explicit the complexity of the problem and the trade-offs and potential synergies which exist within these three facets of sustainability. The optimal sustainable development solution is one which balances the total economic cost and social change together with the inevitable environmental consequence but ensures that scarce resources are not squandered, either deliberately or through ignorance. Sustainable development is variously defined but this research relies on the Brundtland definition "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”

This research considers only the economic dimension of evaluating a sustainable design. The research project began from the premise that whilst much is said about the economics of sustainable projects there is no standard method of measurement of life cycle cost and currently option appraisals were being carried out with no definition of the parameters of the calculation. The life cycle costing texts are rich in mathematical theory, risk and sensitivity analysis, data management and

component life assessment. However, no text has produced an explicit method of measurement for option appraisal or benchmarking. This research project focuses on deriving a standardised approach to the life cycle costing of sustainable design in buildings. The specific aim was to design a method with general applicability to building projects focusing on insulation, controlled ventilation, micro and biomass heating and electricity generation. The methodologies of life cycle costing (LCC) are well understood but the rules of their application in option appraisal are not.

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Background

1.2 Preliminary work

A preliminary literature search confirmed the view of the QSCFB that whilst there are a number of publications which deal with sustainability at a global impact level, few deal with sustainability at a project level and none set a life cycle cost methodology suitable for use by surveyors in option appraisal. A useful publication at project level is the 2002 CIRIA publication “Sustainability accounting in the construction business”. Aimed specifically at clients, construction firms and project managers the report includes as appendices case studies and reporting proforma but does not give an option appraisal or life cycle costing methodology. It concludes “in terms of who is best placed to undertake the work involved to produce a set of [sustainability] accounts is open to debate”. Life cycle cost methodology is well understood if

infrequently used. Boussabaine and Kirkham (2004), Bourke et al (2005), Flanagan and Jewell (2005), Kelly and Hunter (2005) being an example of most recently published work. However, although the principles are well described a standard method approach to life cycle costing of sustainable design was not available. This paper uses the term life cycle costing following the logic of ISO/FDIS 15686-5:2006(E) Buildings and Constructed Assets – Service Life Planning – Part 5 – Life Cycle Costing, that defines whole life costing as including the finance and other costs which precede the concept and design stages.

1.3 Aims and Objectives

The aim of this research was to produce a standardised approach to the life cycle costing of sustainable design in buildings. The specific aim was to design a method with general applicability to building projects focusing on insulation, controlled ventilation, micro and biomass heating and electricity generation.

The objectives set at the outset were:

1. A standard method to calculate life cycle costs for sustainable design.

2. A checklist to allow surveyors to gather, in a logical fashion, the data necessary to populate the life cycle cost model.

3. The production of information in a standard form conducive for the client to make an informed cost -benefit decision.

4. To illustrate the method with examples to show the life cycle costs of such installations.

5. To present a commentary on issues such as embodied energy, ventilation, air tightness, insulation, etc. This report describes the output of the work undertaken in meeting these objectives.

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02 Background to life-cycle costing

Life cycle costing refers to an exercise in which the capital

cost of the project and all relevant future costs are made explicit and used either;

• as the basis for a cash flow prediction over a given period of time or

• used in an option appraisal exercise to evaluate various solutions to a given design problem.

In either situation the time value of money is an important element but in this research the focus is on option appraisal.

There are other terms which are in current use, for example, cost in use, life cycle costing, whole life appraisal and through life costs. A new ISO standard, ISO ISO/FDIS (ISO/FDIS 15686-5:2006 (E) Buildings and Constructed Assets – Service Life Planning – Part 5 – Life Cycle Costing) includes an extensive list of definitions of very similar terms. A glossary of terms is given in appendix 1.

In the context of a standard approach Ruegg et al (1980) states that from the perspective of the investor or decision-maker all costs arising from the investment decision are potentially important to that decision and that those costs are the total whole-life costs and not exclusively the capital costs. Ruegg et al outlines five basic steps to making decisions about options:

1. Identify project objectives, options and constraints.

2. Establish basic assumptions.

3. Compile data.

4. Discount cash flows to a comparable time base.

5. Compute total life cycle costs, compare options and make decisions.

The basic assumptions referred to are related to the period of study, the discount rate, the level of comprehensiveness, data requirements, cash flows and inflation.

Flanagan and Jewell (2005) supplement the above by stating that the following questions drive the application of the whole life approach:

1. What is the total cost commitment of the decision to acquire a particular facility or component over the time horizon being considered?

2. What are the short term running costs associated with the acquisition of a particular facility or component?

3. Which of several options has the lowest total life cycle cost?

4. What are the running costs and performance

characteristics of an existing facility - asset? (bringing into play post occupancy evaluation)

5. How can the running costs of an existing facility be reduced? (bringing into play benchmarking)

6. For a Build Operate Transfer concession project how can the future cost be estimated at design phase and what is the reliability?

2.1 Costs

Marshall and Ruegg (1981) give recommended practice for measuring benefit-to-cost ratios and savings-to-investment ratios based on a similar five step process and focusing in their appendix on savings-to-investment ratio evaluations of energy conservation investments as a means to determining between retrofit options for housing including; solar domestic water heating, substituting electric resistance heating with gas central heating, attic insulation and double glazing.

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Background to life-cycle costing

In 1986 the Quantity Surveyors Division of the RICS produced a guide which listed the costs to be included within a life cycle cost calculation. All expenditure incurred by a building and during its life were described as: 1. Acquisition costs - total cost to the owner of acquiring

an item and bringing it to the condition where it is capable of performing its intended function.

2. Disposal costs - total cost to the owner of disposing of an item when it has failed or is no longer required for any reason.

3. Financing costs - cost of raising the capital to finance a project.

4. Maintenance costs - cost of maintaining the building,

to keep it in good repair and working condition. 5. Occupation costs - costs to perform the functions for

which the building is intended.

6. Operating costs - costs of for example; building tax, cleaning, energy, etc. which are necessary for the building to be used.

Costs to be included in a life cycle cost calculation are factual costs able to be estimated with a known degree of certainty. Excluded are externalities and intangible costs consequential to the design decision but unable to be estimated with certainty.

2.2 Life

In the RICS guide life is defined as the length of time during which the building satisfies specific requirements described as:

1. Economic life - a period of occupation which is considered to be the least cost option to satisfy a required functional objective.

2. Functional life - the period until a building ceases to function for the same purpose as that for which it was built.

3. Legal life - the life of a building, or an element of a building until the time when it no longer satisfies legal or statutory requirements.

4. Physical life - life of a building or an element of a building to the time when physical collapse is possible.

5. Social life - life of a building until the time when human desire dictates replacement for reasons other than economic considerations.

6. Technological life - life of a building or an element until it is no longer technically superior to alternatives. Of relevance to this research, the guide describes residual values as the value of the building when it has reached the end of its life and does not have an alternative use; or has reached the end of its life for its planned purpose but does have an alternative use. The issues here with regard to life highlights the different elements impacting the study period and reflect a total building life mindset. Flanagan et al (1989) states that two different time scales are involved in life cycle costing: firstly the expected life of the building, the system or the component; and secondly the period of analysis. Flanagan states; "it is important when carrying out any form of life cycle costing to differentiate between these two timescales, since there is no reason to believe that they will be equal: for example the recommended period of analysis for federal buildings in the US is 25 years, considerably less than any

reasonable building life. This introduces a seventh element to the above list namely the period of study.

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Background to life-cycle costing

Ruegg and Marshall (1990) confirm seven study periods namely:

1. The investor's holding period - the time before selling or demolishing.

2. The physical life of the project - specifically relating to equipment.

3. The multiple lives of options - recognising that options having exactly the same total costs over one period of time will have different total costs if the cash flows are taken over different periods due to replacement and maintenance occurring at differing points in time. 4. Uneven lives of options - recognising that where

alternatives have different lives and cash flows then residual values have to fully compensate particularly over short study timeframes. A note is also made of the dangers of using annual equivalent discount models where alternatives have uneven lives. 5. Equal to the Investors Time Horizon - the period

of interest the investor has in the building. 6. Equal to the longest life of alternatives. 7. The quoted building life.

Kelly and Hunter (2005) recommend that a life cycle cost calculation should not extend beyond 30 years. This reflects the view of the authors that buildings change significantly both functionally and economically within a 30 year period to the extent that the costs and functions known at time zero cannot reflect those costs and functions 30 years hence. Examples are given for retailing which has changed significantly within 30 years and healthcare which is practised entirely differently today from that which was practised in 1978. The exception may be housing.

2.3 Data

Kelly and Hunter (2005) and Flanagan and Jewel (2005) cite the same basic data sources as: data from specialist manufacturers, suppliers and contractors, predictive calculations from model building and historic data. All authors highlight the danger associated with data used for life cycle costing; Flanagan and Jewel state:

• Data are often missing. • Data can often be inaccurate.

• People often believe they have more data than actually exists.

• It can be difficult to download data for subsequent analyses and for data sharing by a third party.

• There will be huge variation in the data, sometimes for the same item.

• Data are often not up to date.

• Data input is unreliable: the input should be undertaken by those with a vested interest in getting it right. Both Kelly and Hunter and Flanagan and Jewel quote the UK Office of Government Commerce (2003) which states that it is important to focus on future trends rather than compare costs of the past. Where historic data is available it may provide misleading information, such as the past mistakes in the industry and focusing on lowest price. Historic data is best used for budget estimates at whole building or elemental levels. At the point of option appraisal of systems and components it is always preferable to estimate the cost from first principles and only to use historical cost information as a check.

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Background to life-cycle costing

2.4 Discount rates

Ruegg and Marshall (1990) consider in detail the discount rates to be used in the context of business discount rates for commercial decisions and public discount rates for public decisions. Ruegg and Marshall also introduce the theory of risk adjusted discount rates. Boussabaine and Kirkham (2004) take this further and introduce methods of assessing and blending the risk methodology with life cycle cost calculations.

A final point to make is the relevance of value to the life cycle cost equation outlined in Preiser et al. (1988) which states; "the term evaluation contains a form of the word value, which is critical in the context of post occupancy evaluation since any valuation has to state explicitly which and whose values are being used in establishing evaluation criteria”. In the context of a post occupancy evaluation as opposed to life cycle costing it brings into focus that the majority of writers in life cycle costing are focused on cost rather than value.

The evidence from the literature in the context of the research gives support to the development of life cycle costing taking account of all relevant costs, over a given time period for all options being considered, using contemporary data, with appropriate discount rates and taking into account risk.

2.5 Review of ISO/FDIS 15686-5:2006(E) Buildings and Constructed Assets – Service Life Planning Part 5 Life Cycle Costing

The standard, still in its draft form, has the objective of "to help to improve decision making and evaluation processes, at relevant stages of any project". Other key objectives are "make the life cycle costing assessments and the underlying assumptions more transparent and robust" and "provide the framework for consistent life cycle costing predictions and performance assessment which will facilitate more robust levels of comparative analysis and cost benchmarking". These three objectives, out of 14 listed, are considered the most important in the context of the current project. The standard describes life cycle costing as "a valuable technique which is used for predicting and assessing the cost performance of constructed assets".

The standard describes three levels of application namely;

• Strategic level relating to the structure, envelope, services and finishes.

• System level (elemental level) relating to floor wall and ceiling finishes, energy, ventilation, water capacity, communications, cladding, roofing, windows and doors, foundations, solid or framed walls and floors. • Detail level (component level) for example ceiling tiles,

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Background to life-cycle costing

This is a useful categorisation but it ignores the level of asset management which is described elsewhere in the standard as "life-cycle costing is relevant at portfolio/estate management, constructed asset and facility management levels, primarily to inform decision-making and comparing alternatives. Life-cycle costing allows consistent comparisons to be performed between alternatives with different cash flows and different time frames. The analysis takes into account relevant factors throughout the service life, with regard to the clients’ specified brief and project specific service life performance requirements”. See Figure 1.

The standard reiterates many of the concepts reviewed and is a useful document if for no other reason that it highlights the application of life cycle costing at the four stages of asset/portfolio management, project management, elements and component levels. Although there is a large amount of work to be done at the first three levels in the context of sustainability the focus of attention of this research is at component level.

PRE-PROJECT Asset Management/ Option Appraisal LCC study 1 Optional Project Appraisal LCC study 2 Element Appraisal LCC study 3 Retro-fit Component Appraisal LCC study 4 Year Zero Component Appraisal LCC study 4 LCC Audits

STRATEGIC BRIEF BRIEF OUTLINE DESIGN

PROJECT POST PROJECT

POST PROJECT EVALULATION

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Background to life-cycle costing

2.6 A Review of Existing Methods and Models

BCIS Running Costs Online

BCIS Building Maintenance Information (BMI) has recorded the cost of occupying buildings in the UK for over 30 years, and has collected data on the occupancy and maintenance costs of buildings from subscribers and other sources. The database was paper based, subscribers receiving a mailing at regular intervals. This service has been re-launched as BCIS Building Running Costs Online and as the name suggests is a web based service to professionals involved in facilities management, maintenance, and refurbishment. A central database is organised in an elemental format allowing comparative analyses to be undertaken, rebased for time and location based upon indices updated monthly. The service also keeps life expectancy of building components data.

BCIS Running Costs Online has a life cycle costing module that combines the information from the BCIS annual reviews of maintenance and occupancy costs with the data from the bi-annual occupancy cost plans allowing users to compare the running costs of different building types. The output is a spend profile over a period of up to 60 years showing the estimated expenditure for each year of the selected period.

Society of Construction and Quantity Surveyors (SCQS) – Framework for whole life costing

The SCQS framework document and spreadsheet based LCC package was launched in 2005 and has been used mainly within the local authority arena. It updates the original document produced by Smith et al (1984). The spreadsheet package is elementally based with three modules comprising; a Job Box in which the components of each element are built up; an intelligent input tool for the input of base data in response to requests on prompt screens and finally completed spreadsheets comprising a record of the input, a master calculation sheet and a sensitivity analysis sheet. The spreadsheets are completed automatically by the input tool giving confidence in the accuracy of calculations and placement in the correct cell on the spreadsheet. The spreadsheet format is familiar to surveyors and can be manually checked at any time during the operation.

The programme does not rely on a database; the

database is effectively constructed in the Job Box. The entire Job Box can however be easily transferred from project to project. The tool was developed to enable option appraisals to be undertaken quickly and accurately using present value techniques over study periods of not exceeding 30 years.

University of Dundee

Professor Malcolm Horner of Whole Life Consultants Ltd and the Construction Management Research Unit, University of Dundee, has launched a web-based element-orientated life cycle costing system based upon the output of an EPSRC funded research project. The aim is to minimise life cycle costs through the

application, to construction components, of the integrated logistic support methodologies used in the aircraft industry. Data is collected in a user prescribed manner and stored in a database accessed on line. The program entitled "Life cycle cost Evaluator" is written in Java facilitating flexibility for bespoke applications and in reporting structures at both preliminary and detailed design stages. The system is compliant with ISO 15686. The default cost breakdown structure is that proposed by BCIS, but any structure can easily be created and amended, simply by "dragging and dropping". The software's flexible input and output systems and novel features reduces the time to estimate life cycle costs by up to 80%, and facilitate the production of a construction industry maintenance management operating system. (Note: Text submitted by

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Background to life-cycle costing

Life cycle cost Forum - LCCF

The LCCF claims to have been set up as the first construction industry initiative to promote the use of whole-life costs. It was launched in November 1999 with the aim of developing an online comparator tool to remove errors and prevent the reliance on spreadsheets. One of the main objectives was to advance the use of life cycle costing along the entire length of the supply chain. The tool allows whole-life costs to be compared on a like-for-like basis and works on the basis that the supplier is the best source for information on life cycle costs of their own products. There is also a system that provides benchmarks contained in a central database to allow for comparisons across similar projects.

LCC comparator - BRE

LCC comparator is a tool developed by BRE to calculate the life cycle cost of building elements and components. It reduces the amount of time normally spent working on life cycle cost calculations by minimising the effort required. The tool highlights how higher capital costs at the outset can be more effective over the long term with regard to lower maintenance and operating costs. A note on the website (January 2008) indicates that the tool is no longer available.

2.7 Rules

A review of the literature and examination of the available systems demonstrated that life cycle costing can be undertaken for diverse reasons in many different ways generating variable outputs. If a life cycle cost of sustainable options were to be undertaken then rules have to be developed to ensure that options are compared on an identical basis. For this reason the following rules were developed as a part of this research and checked through desk studies and third party analysis. The rules and methodology make an important contribution to surveying.

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03 Rules

3.1 Introduction

The following rules were derived from literature and validated through the expert analysis of the RICS Quantity Surveying and Construction Faculty. The rules were considered a necessary prerequisite for the analysis of the life cycle cost of sustainable solutions and particularly for option appraisal.

The purpose of life cycle costing is to provide information in a form which assists decision-making on capital and through life costs. The purpose of this standard approach is to guide the preparation of life cycle cost studies in a standard form which facilitates audit and data exchange. This standard approach acknowledges six levels of study:

• Study at multi asset or portfolio/estate level

• Study at single asset or whole building level • Study at cluster level (multi-element)

• Study at element level

• Study at system level

• Study at component or detail level

The general rules and the formulae apply to all levels of study.

There are two primary reasons for undertaking a life cycle cost study

• a study to predict a cash flow(s) over a fixed period of time for budgeting, cost planning, tendering, cost reconciliation and audit.

• a study as part of an option appraisal exercise at any of the six levels of study in a manner that allows comparison. The cash flow of the selected option may be used to generate a cash flow over a fixed period of time and therefore can be metamorphosed into a study of the first type.

3.2 General Rules

1. A brief description of the project will be given.

2. The purpose of the study shall be stated. Examples include:

a. Prediction of a single cash flow

b. Option appraisal based on multiple cash flows c. Comparison of tenders that include a cash flow

d. Audit of single or multiple cash flow(s).

3. The focus of the study shall be stated as one or more of the following:

a. Study at multi asset or portfolio/estate level b. Study at single asset or whole building level

c. Study at cluster level (multi-element)

d. Study at element level

e. Study at system level

f. Study at component or detail level

4. The study will state whether the data for the LCC exercise is built up from first principles or whether parametric data is used.

5. Time zero shall be stated. Time zero is the point in time from which the study period commences.

6. Capital costs are all relevant costs accrued prior to time zero and deemed to include service and product delivery and installation, finance costs, fees and taxes.

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Rules

7. Maintenance costs are all relevant costs necessary to facilitate the asset’s continuing structure, fabric, services and site performance at the level specified at time zero.

8. The study period shall be stated. The study period is the time from time zero to a given point in time in the future and over which the calculations pertain. 9. The units of time shall be stated. The units of time

are the increments to which the calculations refer and may be for example; years, months, weeks, days. All factors in the calculations, for example, interest rates will relate to the stated units of time.

10. Assumptions with regard to interest rates shall be stated.

11. Assumptions with regard to hard FM activities in the final period of study shall be stated.

12. The method of depreciation shall be stated, for example a straight line method of depreciation may be assumed. Where depreciation is not applicable this shall be stated

13. Assumptions with regard to residual values shall be stated.

14. The method of undertaking sensitivity analysis and/or risk analysis shall be stated.

3.3 Formulae

The following formulae shall be used as applicable: P = principal or present value

i = interest expressed as a decimal n = number of time periods

A = accumulated amount or future amount

R = repayment or regular payment to a sinking fund 1. Compound Interest

2. Present Value

3. Year’s Purchase or Present Value of £1 per Annum

Alternative formula for calculators without –n function

4. Sinking Fund

5. Mortgage

Interest Rate Adjustments All rates expressed as a decimal a To adjust an interest base

rate t by inflation rate f to give a discount rate i

b To adjust an interest rate per annum (ipa) to an interest rate per month (ipm)

P = R (1-(1+i)

-n

)

i

i(1+i)

n

P = R ((1+i)

n

-1)

R =

(1+i)

Ai

n

_-1

R

R =

_(1+i)

_n

-1

Pi(1+i)

n

P =

_(1+i)

A

_n

A = P (1+i)

n i =_(1+f)(1+t)-1 (1+ipa₎ ipm= 12

(

)

-1

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Rules

3.4 Purpose of Calculation

The purpose of the calculation shall be stated as one of the following:

1. A prediction of cash flow over time for a single asset (no discounting and no option appraisal).

2. A prediction of cash flow over time for multiple assets (no discounting and no option appraisal).

3. An option appraisal of cash flows of multiple solutions to a problem where no “base case” is established. 4. An option appraisal of cash flows of multiple solutions

to a problem where a “base case” is established.

3.5 Method of Measurement of Components

1. The component shall be described either in terms of its manufactured part reference or in terms of its physical characteristics and function.

2. The number of identical components shall be stated. 3. Maintenance of the component shall address the

following:

a. Requirements for periodic inspection.

b. Periodic and predetermined physical maintenance listing each different type of maintenance separately. 4. The physical life of the component shall be stated as

follows:

a. The actual life where the component is to be replaced as a planned activity prior to failure. b. The estimated physical life where the component is

to be replaced upon failure.

5. The capital cost of the installed component shall be given and stated whether estimated or firm.

6. The estimated maintenance costs shall be stated. 7. The estimated scrap value of the replaced component

shall be stated.

3.6 Method of Measurement of Systems

1. The system shall be described in terms of its components.

2. The rules of measurement for components will apply to those components comprising a system.

3. Systems will be described under element headings.

3.7 Method of Measurement of Single Unit Items including Energy

1. Single unit items will be described separately from components and systems.

2. Single unit items include energy and those services represented as a single sum per period of time such as management fees, insurances, cleaning, etc.

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04 Checklist for data gathering at component and system levels

Following a desk study review of websites including the Energy Savings Trust, Scottish Community and Householders Renewables Initiative (SCHRI) and the Carbon Trust, the following questionnaire was produced to obtain data from manufacturers and suppliers at component and system levels. The questionnaire was piloted through consultation interviews with

manufacturers of selected technologies (n=6).

4.2 Questionnaire

The questionnaire is illustrated with answers from a fictitious manufacturer of a hot water solar panel with the trade name of SolarPanPlus. The data is used in the illustrative calculations later.

1. Give a brief description of the technology:

SolarPanPlus is an evacuated tube solar roof panel that delivers hot water to a twin coil hot water cylinder. The pump, controls and secondary tank thermostat are powered by an integral PV unit negating any mains electrical work.

2. What is the supplied cost of the technology (exc. Works)?

£7050 inclusive of VAT and installation for a 4.2 m2 panel installed on a typical two storey three bed detached house.

3. Approximately what is its installation cost and labour hours?

SolarPanPlus is normally fitted by two skilled operatives in a single day.

4. What are the primary components that will require servicing and replacement during the life of the technology?

Components

• All components have an estimated 20 year life except for the pump which may need to be replaced at ten years.

• One SolarPanPlus heat collector and PV panel of 4.2 m2 (with cable) for a typical two storey three bed detached house.

• Roof mounting brackets • Pipe, fittings, tees • Pump

• Thermometer • Control valve • Control unit • Tank thermostat

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Checklist for data gathering at component and system levels

5. Does this component require regular inspection and if so what is the inspection period and the inspection time in labour hours?

Included with service, see below.

6. Does this component require regular maintenance and if so what is the maintenance time in labour hours? If more than one type of maintenance e.g. after 1000 hours/ after 5000 hours/ etc. please list these separately (or attach maintenance schedule with estimation of labour hours)

SolarPanPlus requires inspection at 3 year intervals at which point the panel including the integral UV panel will be cleaned and checked and the antifreeze changed. The inspection takes one operative one day and is currently charged at £300 including VAT. 7. What is the estimated service life of the component

in years? 20 years.

8. What are its approximate removal and re-installation labour hours?

The panel can be easily removed. The cost of

re-installation is the same as the supply of a new panel. 9. What is the terminal/scrap value of this component at

the end of its life?

Over 80% of the panel is easily recyclable but the panel has no terminal value.

10. What factors shorten component life e.g. exposure to UV light, salt laden air, etc.

The panel is resistant to UV light

11. Is there a standard warranty period for the component, if so how long?

5 year warranty. A maintenance contract can be purchased for £12 per month which extends the warranty to 20 years and includes regular inspection and all necessary replacements and maintenance. 12. What is the estimated energy generation and/or

savings accrued from using this product

In an average year SolarPanPlus will supply a family’s domestic hot water requirements (assuming sensible use – i.e. short low flow showers, spray taps in bathrooms, etc) during the summer months and 30% of the requirement during the remainder of the year. SolarPanPlus will generate approximately the

electrical equivalent of 25kWh per day in the summer (say 150 days) and 8kWh during the remainder of the year. If a gas boiler is used for heating water in the summer then boiler life extension should be taken into account as the boiler should not fire up during the summer months.

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05 A method for undertaking life-cycle costing of sustainability projects

This section outlines a method for undertaking a life cycle cost appraisal of a sustainable project illustrated in part 6 by reference to fictitious products. The method is an application of the rules in part 3 and follows the logic of the flowchart below. The method is described and illustrated through a number of steps.

5.2 Step 1 – Project Identifiers (rules 1 to 5)

Some description is required to both identify and describe the project including; the basis for the calculation i.e. whether the data is parametric or obtained from manufacturers/suppliers, and the time zero point for all calculations. The type of life cycle cost calculation, prediction of cash flow or option appraisal (with or without a base case), can be included in the general description. This identifies how the data will be used.

5.3 Step 2 – Study Periods (rules 8 and 9)

Determine the length of the study period and also the unit of time (rules 6 and 7). The study period will commence at time zero which has been previously defined. The units of time and the interest rate must correlate i.e. if the unit of time is months then the interest rate must be a percentage rate per month. It may be advantageous to set up any model to calculate over a number of time periods so that options can be quickly compared rather than running repetitive sensitivity checks.

5.4 Step 3 – Inflation Rate and Discount Rate (rule 10)

The inflation rate only is used when predicting a cash flow of over time for the purposes of budgeting, cost planning, tendering, cost reconciliation and audit.

Discount rates are used when comparing two or more dissimilar options during an option appraisal exercise or when comparing tenders which have an FM constituent. The discount rate will be legislated, calculated or given by the client. Public sector option appraisal calculations tend to use the discount rate issued by HM Treasury which is (January 2008) 3.5%. A calculated discount rate takes a relevant rate of interest e.g. the bank rate, and adjusts this for inflation. A client nominated discount rate is used when considering options against strict internal rate of return or opportunity cost of capital criteria

5.5 Step 4 – Gather Data

Data will be obtained from parametric sources e.g. BCIS Running Costs Online, or from first principles either by calculation e.g. energy calculation, or from manufacturers or suppliers. Data gathered from manufacturers or suppliers should include the detail illustrated in Part 4 above.

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A method for undertaking life-cycle costing of sustainability projects

Figure 2 Flowchart of a LCC system

START

TO PAGE 2

Project identifiers:

Project name Brief description of the project

File name Anticipated time zero

User identification:

User name/password

What type of LCC calculation?

1. Prediction of future cash flows only (for budgeting)

2. Option appraisal of future cash flows 3. Ditto but with a base case established

What discount rate?

1. Legislated (eg. HM Treasury) 2. User specified

3. Calculated

• How many study periods? • What is the length of time of

each study period?

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A method for undertaking life-cycle costing of sustainability projects

FROM PAGE 1

How many sustainable options to be considered?

For each sustainable option and the base option if relevant input:

1. Brief description of the sytem 2. Brief description of system components 3. For each component enter:

a) current capital cost including installation b) estimated service life

c) scrap value at end of life

d) would the component be replaced in last year of study

e) will the component be inspected or maintained in the last year of study f) residual values if NOT straight line method g) inspection period and cost if relevant h) maintainence period and cost 4. Does the sytem save or generate energy?

a) indicate form of energy saved/generated b) estimated value of energy saved/generated c) if grants apply give lump sum value d) give estimated value of renewables obligation certificates if applicable e) value of carbon offsets if applicable

option appraisal cash flow prediction

option appraisal cash flow prediction

TO PAGE 3

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A method for undertaking life-cycle costing of sustainability projects

Calculation based on cash flows for each option and the base case over the study period(s) and evaluated on a net present value basis and using the measures of economic performance.

Calculation based on cash flows for each option over the study period(s) and compared on a net present value basis.

Calculation based on cash flows of a single option over the study period(s) accounting for inflation only.

Has a base case been established

for option appraisal? Yes No END END END FROM PAGE 2 Page 3

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A method for undertaking life-cycle costing of sustainability projects

5.6 Step 5 – Model Construction and Analysis

As discussed in Part 2.6 above there are few commercially available software packages which allow the type of calculation described above. Many Quantity Surveying practices have a life cycle cost package developed and used in-house. These are generally spreadsheet based. The illustration below was constructed using a spreadsheet.

5.7 Illustration 1 – Component cash flow

The first illustration is of a cash flow forecast for budgeting purposes of a single component adjusted for inflation only.

LCC cash flow for a gas fired central heating boiler Inflation rate 2.50%

Year Activity Current cost Future cost

0 Purchase 2350.00 2350.00 1 Annual inspection 40.00 41.00 2 Annual inspection 40.00 42.03 3 Annual inspection 40.00 43.08 4 Annual inspection 40.00 44.15 5 Replace pilot light 200.00 226.28 6 Annual inspection 40.00 46.39 7 Annual inspection 40.00 47.55 8 Replace burner 500.00 609.20 9 Annual inspection 40.00 49.95 10 Replace pilot light 200.00 256.02 11 Annual inspection 40.00 52.48 12 Annual inspection 40.00 53.80 13 Annual inspection 40.00 55.14 14 Annual inspection 40.00 56.52 15 Replace pilot light 200.00 289.66 16 Replace burner 500.00 742.25 17 Annual inspection 40.00 60.86 18 Annual inspection 40.00 62.39 19 Annual inspection 40.00 63.95 20 Replace boiler 2350.00 3850.75 21 Annual inspection 40.00 67.18 22 Annual inspection 40.00 68.86 23 Annual inspection 40.00 70.58 24 Annual inspection 40.00 72.35 25 Replace pilot light 200.00 370.79

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A method for undertaking life-cycle costing of sustainability projects

5.8 Illustration 2 – System cash flow (Inflation rate 2.50%)

The second illustration is of a cash flow forecast for budgeting purposes of a system adjusted for inflation only.

Current Future Current Future Current Future Current Future Total Cash

Yr Activity Cost Cost Cost Cost Cost Cost Cost Cost Flow

0 Purchase 2350.00 2350.00 400 400.00 1100 1100.00 1600 1600.00 5450.00

1 Annual inspection 40.00 41.00 41.00

3 A insp & antifreeze 40.00 43.08 80 86.15 129.23

5 Replace pilot & pump 200.00 226.28 400 452.56 678.84 6 A insp & antifreeze 40.00 46.39 80 92.78 139.16

8 Replace burner 500.00 609.20 609.20

9 A insp, flush & antifreeze 40.00 49.95 200 249.77 299.73 10 Replace pilot & pump 200.00 256.02 400 512.03 768.05

15 Replace pilot & pump 200.00 289.66 400 579.32 80 115.86 984.84

16 Replace burner 500.00 742.25 742.25

18 A insp, flush & antifreeze 40.00 62.39 200 311.93 374.32

20 Replace boiler, pump

controls & radiators 2350.00 3850.75 400 655.45 1100 1802.48 800 1310.89 7619.57

25 Replace pilot & pump 200.00 370.79 400 741.58 80 148.32 1260.68

Figure 4 LCC cash flow for a gas fired central heating system

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A method for undertaking life-cycle costing of sustainability projects

5.9 Illustration 3 – Option appraisal with a base case

Assume a project to retrofit a detached house (50m2_{plan area) by increasing roof insulation thickness from 100mm} to 250mm ( from u-value including structure approximately 0.36 to approximately 0.16) and/or installing cavity wall insulation (from u-value 1.00 to 0.55) or fitting a roof mounted solar hot water panel as SolarPanPlus illustrated earlier. In this illustration the base case is the existing situation.

Application of the rules

This exercise is an option appraisal with a base case. With reference to the rules and the checklist the following data has been obtained.

The project is to retrofit a detached house (50m2_{plan area) to significantly reduce gas} consumption. One or more of the following options are being considered within a total budget of £7000:

• increasing roof insulation thickness from 100mm to 250mm (from u-value including structure approximately 0.36 to approximately 0.16)

• installing cavity wall insulation (from u-value 1.00 to 0.55) • fitting a roof mounted SolarPanPlus solar hot water panel

The purpose of the study is an option appraisal based on multiple cash flows The study will be conducted at system level

The data for the study is built up from first principles

Time zero is taken from the completion of the installation works when the systems are ready for use. The target date for time zero is 1st August 2008

The study period reflects the householder’s intention to remain in the dwelling for the next 15 years. Studies will be conducted over 10, 15 and 20 years to check for time sensitivity in the calculations.

The unit of time is years

The interest rate will be calculated assuming a return on a deposit account of 5% and an inflation rate of 2%.

The maintenance requirements of the options examined apply only to the

SolarPanPlus. For the purposes of this example the maintenance contract will not be used.

Depreciation will not apply and residual values will not be included in the calculation. Maintenance and replacements will not be accounted for if they occur in the final year of the study.

Sensitivity checks will be undertaken by including three study periods and by varying the discount rate by 2% (increase and decrease).

Rule 1 Rule 2 Rule 3 Rule 4 Rule 5 Rule 8 Rule 9 Rule 10 Rule 11 Rule 12 Rule 13 Rule 14

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A method for undertaking life-cycle costing of sustainability projects

Basis of the calculation

£7000 5% 2%

10, 15 and 20 years

Initial cost of 64m2_{at £7 per m}2_{installed = £448}

Assuming a designed temperature difference of 21o_{C a U value}

improvement of 0.2 will lead to a reduction of approximately 1000 kWh during the heating season (2500 degree days). At £0.03 per kWh for gas this leads to a saving of £30 per annum.

Initial cost of 120m2_{wall area = £600}

Assuming a designed temperature difference of 21o_{C a U value}

improvement of 0.45 will lead to a reduction of approximately 4100 kWh during the heating season (2500 degree days). At £0.03 per kWh for gas this leads to a saving of £123 per annum.

Initial cost £5875

Maintenance at 3 yearly intervals £300 Replacement pump year ten £80

150 days at 25kWh per day at £0.03 per kWh (gas) = £112.50 215 days at 8kWh per day at £0.03 per kWh (gas) = £51.60 Total saving = £164.10 per annum

Available budget Interest rate on deposits Inflation rate Study periods Roof insulation costs Roof insulation fuel savings

Cavity wall insulation Cavity wall fuel savings

SolarPanPlus costs

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A method for undertaking life-cycle costing of sustainability projects

Calculations

The calculations are based upon the rules and the basic data as indicated above. It should be noted that residual values have not been included in the calculation, a factor discussed further in the report below. As the option appraisal is referring back to a base case the calculations include measures of economic performance.

Report

Illustration 3 is a relatively common type of option appraisal but in this case strictly complies with the rules developed during the research. The option appraisal compares an upgrade of roof insulation, the installation of cavity wall insulation and the retro fitting of a solar hot-water panel. The option appraisal is typical of a life cycle costing exercise with a base case. The option appraisal has been carried out over three study periods, 10 years, 15 years and 20 years and has been checked for sensitivity to plus and minus two per cent on a calculated discount rate based on a 5% interest rate and a 2% inflation rate.

The least cost option is the upgrade of roof insulation a monetary saving of £30 per annum. This apparently low level of saving is because the roof is already insulated and therefore only a marginal improvement in the U-value can be achieved. The cavity fill option is based on a cavity wall complying with the building regulations of circa 1980. It should be noted that a better U-value improvement can be achieved over a much larger area than the roof. The cost of the solar panel assumes installation on top of the existing roof covering.

With reference to Figure 5 (calculated discount rate) the results of the calculations demonstrate that based on discounted payback:

1. The roof insulation will pay back in year 20. The internal rate of return for increased roof insulation is 2.96%, considerably lower than the interest rate of 5% indicating that £448 is better invested on deposit rather than spent on increasing insulation.

2. The cavity fill will pay back in year 6. The cavity filled option offers the highest value for money with a Saving to Investment Ratio increasing from 1.75 in year 10 to 3.07 in year 20. The internal rate of return on cavity fill is almost 20% after 20 years indicating that this is a worthwhile investment.

3. The solar panel will never pay back: indeed the savings on the solar panel are only marginally higher than the cost of maintenance and replacements meaning that after 20 years, the expected “end of life” of

the solar panel, the savings are a little over £1,000. In monetary terms this is a poor investment.

The sensitivity checks indicate (figures 6 and 7) very little change from the facts reported above.

One factor which has not been included is residual values. The logic for not including residual values is that the roof insulation and the solar panel are likely to need replacing in their entirety after a 20 year period. This is an important observation as it demonstrates that taking a residual value, based on a straight line method of depreciation, is only valid when a pay back is made before the end of component life. If the residual value equation were to be strictly interpreted then the Savings to Investment Ratio would be higher in year 10 than it would be any at the end of the components life which is illogical. In this type of option appraisal exercise therefore residual values must be treated with great care. The final point to emphasise here is that the above analysis is solely from an economic perspective. If the calculations included facets of value then the result could be different.

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A method for undertaking life-cycle costing of sustainability projects

Figure 5 Results of a calculation for a comparative LCC using a calculated discount rate

Discount Rate Calc

Interest rate Inflation rate Discount rate

Initial capital cost Saving per annum Maintenance Replacement

Report Year 10

Initial capital cost Net savings Savings to Investment Ratio Discounted payback Internal Rate of Return

Report Year 15

Report Year 20

0.05 0.02 0.029 Option 1 Roof Insulation £448.00 £30.00 £448.00 -£191.32 0.57 n/a n/a £448.00 -£88.33 0.80 n/a 0.06% £448.00 £0.76 1.00 year 20 2.96% Option 2 Cavity Fill £600.00 £123.00 £600.00 £452.37 1.75 year 6 15.75% £600.00 £874.63 2.46 year 6 18.99% £600.00 £1,239.92 3.07 year 6 19.96% per 3 yrs per 10 yrs Option 3 SolarPanPlus £5,875.00 £164.10 £300.00 £80.00 £5,875.00 -£5,289.08 0.11 n/a n/a £5,875.00 -£5,131.80 0.14 n/a n/a £5,875.00 -£4,822.49 0.19 n/a n/a

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A method for undertaking life-cycle costing of sustainability projects

Figure 6 Sensitivity check on Figure 5 using a discount rate of 5%

0.050 Option 1 Roof Insulation £448.00 £30.00 £448.00 -£216.35 0.52 n/a n/a £448.00 -£136.61 0.70 n/a 0.06% £448.00 -£74.13 0.83 n/a 2.96% Option 2 Cavity Fill £600.00 £123.00 £600.00 £349.77 1.58 year 6 15.75% £600.00 £676.70 2.13 year 6 18.99% £600.00 £932.85 2.55 year 6 19.96% per 3 yrs per 10 yrs Option 3 SolarPanPlus £5,875.00 £164.10 £300.00 £80.00 £5,875.00 -£5,333.37 0.10 n/a n/a £5,875.00 -£5,208.57 0.12 n/a n/a £5,875.00 -£4,991.48 0.16 n/a n/a

Discount rate

Report Year 10

Report Year 15

Report Year 20

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A method for undertaking life-cycle costing of sustainability projects

Figure 7 Sensitivity check on Figure 5 using a discount rate of 1%

0.010 Option 1 Roof Insulation £448.00 £30.00 £448.00 -£163.86 0.63 n/a n/a £448.00 -£32.05 0.93 n/a 0.06% £448.00 £93.37 1.21 year 17 2.96% Option 2 Cavity Fill £600.00 £123.00 £600.00 £564.97 1.94 year 5 15.75% £600.00 £1,105.40 2.84 year 5 18.99% £600.00 £1,619.60 3.70 year 5 19.96% per 3 yrs per 10 yrs Option 3 SolarPanPlus £5,875.00 £164.10 £300.00 £80.00 £5,875.00 -£5,241.27 0.12 n/a n/a £5,875.00 -£5,044.90 0.15 n/a n/a £5,875.00 -£4,609.69 0.22 n/a n/a

Discount rate

Report Year 10

Report Year 15

Report Year 20

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06 Conclusion

6.1 Conclusion to the research project

This research project set out with a number of objectives:

1. A standard method to calculate life cycle costs of sustainable design.

2. A checklist to allow surveyors to gather, in a logical fashion, the data necessary to populate the life cycle cost model.

3. The production of information in a standard form conducive for the client to make an informed cost -benefit decision.

4. To illustrate the method with examples to show the life cycle costs of such installations.

5. To present a commentary on issues as embodied energy, ventilation, air tightness, insulation, etc.

At beginning of the research it became apparent that whilst there were a number of papers and texts referring to life cycle costing methodologies and definitions none proposed a set of rules to be strictly applied in cases of option appraisal. This research has generated those rules and related definitions and tested them in expert gatherings. A draft of these rules and definitions has been passed to BSI and BCIS to inform the document “Standardised Method of Life Cycle Costing for Construction: UK supplement to ISO 15686 Part 5 life-cycle costing for buildings and constructed assets”. The rules and definitions governing the approach to LCC should be considered the biggest contribution to surveying made by this research.

The research highlighted the importance of recognising the two primary reasons for undertaking life cycle costing, namely:

• to predict a cash flow of an asset over a fixed period of time for budgeting, cost planning, tendering, cost reconciliation and audit purposes and

• to facilitate an option appraisal exercise at any of the six identified levels of study in a manner that allows comparison. This will also include benchmarking and tender comparisons.

Examples were seen during the research of calculations conducted in different ways using different methodologies, different time scales, and making many different

assumptions particularly with regard to fuel inflation.

The research findings also demonstrated the need for a standardised approach to data gathering at component level and this is illustrated in part 4 of this report.

The questionnaire described in part 4 was tested and refined with a number of suppliers manufacturers. Checklists have been developed for both sustainable design and sustainable energy solutions, and these are included in appendices 2 and 3 and a standardised approach to the prediction of a cash flow and an option appraisal is presented.

It is recommended that the standardised approach is adopted by surveyors advising clients based upon life cycle cost calculations.

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Conclusion

6.2 Final Comments

The study described has taken the researchers far and wide in the field of sustainability and it would be remiss if this report did not include some personal observations of the researchers:

1. Sustainable Design.

The genesis of this study was a challenge laid down by Howard Liddell, (an RIAS 4 star accredited sustainable design architect and winner of an RICS sustainability award in 2003 for the Glencoe visitor centre) to be more explicit with regard to the costs associated with

sustainability. This research has made significant progress towards a standardised methodology and some of the work has been incorporated into the BSI/BCIS publication mentioned above. However, rules of thumb are difficult to evolve except to say that on-site, micro energy solutions are difficult to justify on economic grounds. On the other hand many innovative design solutions have been used to substantially reduce a project’s carbon footprint. These design solutions do not need to cost more; it is a gross oversimplification to say that a sustainable design will add 10% or 15% to the cost of the building. This logic comes from ‘addition thinking’ i.e. here is a designed office building, house or school, how much extra will it cost to modify the design to include for example convection powered ventilation? Design has to be based on a clear briefed concept and a value system dictated by the client; ‘addition thinking’ is entirely the wrong approach.

Examples reflecting sustainable value in design were seen at Arup’s Solihull Campus, at Gaia’s Glencoe visitor centre for the National Trust for Scotland, at King Shaw Associates’ Innovate Green office project at Thorpe Park Leeds and at Keppie’s design for Great Glen House, Inverness, the headquarters building for Scottish Natural Heritage. These three examples demonstrate a

sustainable design solution to a clear brief backed by an explicit value system. The cost of these solutions has to be viewed from a value for money perspective calculated on LCC principles. Comparisons with design solutions where sustainable design was not a feature of the client’s value system could in theory be made but the calculations and logic are complex.

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Conclusion

2. Embodied energy

This was initially an objective of the original research proposal but has proved too difficult to accurately model. It was unfortunate in some ways to focus on aluminium products as a trial study. Bauxite is mined in a number of countries worldwide and transported to smelters. Whilst aluminium requires huge amounts of energy in the smelting process a significant proportion (83% in the case of Alcan) of this electricity is sourced from local hydro schemes. The carbon footprint of this smelting process is very small. Finally, the carbon cost of transport and fabrication, further transport and the installation of the final product became so product and site specific that generalisations were completely invalid. Added to this was the maturity (in relation to many other materials) of the aluminium recycling industry. These facts resulted in the embodied energy objective being abandoned. However, the lesson learned was the importance of undertaking specific case studies at least to clarify the accuracy of the perception of a number of designers that for example, metal is bad and wood is good.

3. Micro energy

A lengthy study of micro-energy was undertaken which is reflected in the findings in appendix 3. There are many sources of information and some of these have been referenced. At the end of the study the researchers concluded that although many micro energy products are sold based upon economic advantages, some of which are reported in appendix 3, that the benefit of micro energy has to be based upon a value judgement. Currently, a properly undertaken option appraisal study using the rules advocated by this research is unlikely to prove any economic benefit from a micro energy solution even with the current levels of government grants and current prices paid by electricity companies for surplus generated electricity.