Introduction
We are all aware of the importance of cost when making any investment. Regardless of the product or service, cost is certainly something that all of us consider. These economic considerations are especially important in regard to innovative technologies for your construction or renovation project. They are likely to be central to your decisionmaking process. Although facility needs or funding opportunities may be the initial driver to actually get a project’s conceptual and planning phases rolling, usually it is the project budget that frames the boundaries and overall scope. Throughout the planning and design phases, it is likely that you will move back and forth between performance goals, feasibility considerations, and economic analysis, often in multiple iterations related to any one technology or a set of technologies. Sometimes something that may seem impractical economically at the first pass can be refined or revised so that both the advantages offered by the technology and its economic cost fit both the project goals and the budget.
Let us start with a basic example of how you might incorporate an economic analysis in a project: the architect for your new housing project suggests using spray foam insulation for the exterior walls. After contacting an insulation contractor you learn it will cost three times as much as fiberglass and twice that of dense packed cellulose. Even factoring in the added benefits (thermal performance, improved air sealing, and moisture resistance) the cost simply will not fit in your budget. Although you know you cannot afford the upgrade, you still have a desire for some high-performance characteristics associated with the spray foam. Your insulation contractor suggests blowing one inch of spray foam against the structural sheathing and filling the rest of the cavity with a lower cost insulation material to achieve the code-required levels. This compromise adequately addresses your economic and performance considerations.
Building owners, managers, and decision makers need to understand that, although performing an economic analysis is a critical element to decision making, it is directly tied to other evaluation tools. Performance analysis is necessary to identify the benefits of different products and systems and value them accordingly. Feasibility analysis is also critical to an economic analysis. If a particular technology is not well suited to your climate, an economic analysis of these alternatives would be irrelevant.
To ensure that your economic projections are as accurate as possible early in the decisionmaking process, make sure you obtain pricing estimates that are as accurate as possible. If you have a contractor and subcontractors on board, request cost estimates from them because they will be performing the work and are likely to have the most realistic cost information. If you are still looking for a contractor, be sure to get multiple estimates. Vetting multiple contractors will give you assurance that the pricing is fair and reasonable. Always obtain several references for a similar type and scope of work before selecting a contractor. Keep an eye out for potential conflicts of interest—for instance, a contractor who tells you that you must replace the windows in your building and is a distributor for a particular window manufacturer has a conflict of interest.
As will become evident in the discussion of different types of economic analysis, the evaluation will usually involve comparisons. You often will be comparing different technology options and weighing performance characteristics, the extent of feasibility, and economic costs and savings.
As with the overall project, economic decisionmaking on building innovations are broken down into four major project phases. These phases are intended to outline the thought process for adopting and analyzing innovations from an economic point of view, starting with deciding what is required for the project, proceeding to determining the size and extent of the project, choosing a method and conducting a thorough economic analysis, and finally considering costs that will affect the building owner or operator beyond the implementation of the innovation.
