First Cost/Initial Cost

The first (or initial) costs include those incurred during the design and construction phase of a project. Considering first costs is the simplest form of economic analysis. Product X has a price tag $500 less than product Y. Choosing Product X on this basis would be using first cost to drive your economic decisionmaking.

For most building projects, this analysis will entail a number of components including architect/ engineering fees, product/material costs, and labor/ installation costs.

Although technology costs will certainly need to fit within your overall project budget, be sure to look ahead at how that technology or set of technologies may impact the total operating costs of your building over time. For instance, an energy-efficiency package to achieve 30 to 40 percent above code minimum may cost approximately 15 to 20 percent more than the standard package. Using a more complex economic analysis than first costs, however, such as considering the monthly savings, may alter the economic outlook for an innovation.

Another consideration in first cost is comparing the first cost at initial construction with a renovation cost. Keep in mind the possibility to install the capacity for a certain functionality to be achieved at a later date. For instance, although you might decide not to install grab bars in tubs now, the blocking and support can be installed inexpensively to provide easier retrofit in the future.

First cost may be the most appropriate economic analysis at times. These decisions may be driven by an immediate need to repair or replace items in a building while having limited flexibility. For example, if a water heater breaks and a building owner must restore domestic hot water service to tenants quickly, but they have a limited and inflexible budget for the remainder of the year, they may be forced to choose a water heater based on first cost as budget permits, despite the fact that a more innovative unit might be overall more cost effective when considered on a lifecyclecost basis. Another time might be when choosing between two objects of equal performance. For example, if a building owner has to replace a doorknob on an exterior door and must choose between two doorknobs of equal durability and functionality, making that choice based on first cost may be the most reasonable analysis.