Module 6 Lesson 1 CE 104 - Building Systems Design-converted PDF

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Module 6 Lesson 1
Fundamentals of Building Costs and Life-Cycle Costs...

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Module 6 Lesson 1 Welcome to Module 6 Lesson 1! Financial Considerations: Fundamentals of Building Costs and Life-Cycle Costs Introduction to the Topic In the construction industry, one of the main challenges is managing building projects that have unique features and requirements. However, all projects have elements things in common: a scope of work, a time schedule, and a budget. Construction cost estimation is a fundamental skill for engineering firms and contractors since important project decisions are based on costs. Buildings as results of construction projects are characterized by long lifespan and high costs. This fact is the reason why all decisions connected with construction project have long-term and significant impact. Construction project investors often focused simply on the acquisition costs, when they were about to make decisions about such matters as the building design, equipment, energy systems. They frequently neglected future operation or maintenance costs. As a result of the loss of a holistic view of true costs of a building, the cost-inefficient solution might be selected. Life cycle costs (LCC) in general consist of an initial investment (usually construction costs) and the follow-on costs (ordinary payments, i.e. energy, utilities, cleaning and

maintenance, irregular costs for renewal or replacement), while some life cycle costing methods also include the costs of demolition. Life cycle costing is often recommended as the method for finding cost-optimal solutions for product design. Life cycle costing is becoming the more frequent used tool in the design phase of buildings generally.

Intended Learning Outcomes: At the end of the session, students will be able to: 1. Familiar with the fundamentals of buildings cost in construction; and 2. Understand the application of life-cycle cost analysis.

Discussions: FUNDAMENTALS OF BUILDING COSTS Planning of the construction project is a multi-stage operation. Practically at every stage, from the idea of the project up to its full settlement, cost analyses are carried out. The accuracy of cost estimates improves throughout the design phase, as the project is specified in greater detail. When there are no construction documents yet, only a broad estimate is possible based on the project scale and the type of facility. Engineering firms and contractors with experience in many projects can use historic cost data to improve the accuracy of preliminary estimates. Once the design process is complete, the construction drawings and technical specifications allow more accuracy. The ownership costs of a building can be classified into capital expenditures, operation costs, and maintenance costs. Capital costs tend to get more attention during design and construction, but there is also a great opportunity to save on operation and maintenance. For example, energy-efficient equipment normally comes at a higher price, but the long-term savings outweigh the additional cost. Costs of construction work are classified as: Materials costs

Labor costs Equipment costs Overhead (general and job) costs Profit Data on all of these costs are required to develop or prepare an estimate. The purpose of estimating is to forecast the cost required to complete a construction project in accordance with the contract plans and specifications. There are two distinct tasks in estimating: to determine the probable real cost of the project to determine the probable real time to build the project. Because construction estimates are prepared before a project is constructed, an estimate is, at best, a close approximation of the actual costs. Most estimates are made up of the following five parts: 1. Materials: The estimator makes a take-off of all the different materials required on the project from the plans and specifications. 2. Labor: The estimator estimates the hours needed to do the required work and then multiply by the appropriate wage. 3. Equipment: The cost of equipment includes ownership or rental fees, moving to the job site, erecting, dismantling, and operating. 4. Overhead: There are two types of overheads: (a) General overhead: includes all costs that can not be directly charged to any particular project, such as the cost of office supplies, rent, travel expenses, and salaries. (b) Job overhead: includes all costs which apply directly to the project and can not be charged to materials, labor, or equipment. 5. Profit: Most estimators show the profit expected from a job as a percentage of the total estimated cost of the project. The profit varies from 6-15%. Approximate profits usually expected are: Small projects - 15% Medium projects - 12%

Large projects - 10% Very large projects - 6-8% All Clients interested in obtaining fully functional facilities completed, within time, cost, quality/scope by builder constructing, within estimated time budget, right standards quality as per approved plan. Cost Management is a process where construction cost of the project is managed, through best methods and techniques involving design, construction technologies, materials, manpower/resource environment/waste management, so that available resources are put to optimum use when carrying out activities of project. One of the aims of cost control is to construct at cheapest possible cost without compromising with the quality. During execution of project managers expected to be well equipped to execute project, ensuring quality of work, within estimated cost limits. knowing procedures for project control, and keeping time. Cost control achieved by selecting: right man for right job right equipment right tools for right work right quality of materials in right quantity from right source, at right price,delivered at right time. There are factors that made controlling project costs difficult: delays by clients to release money; delay to make a decision; lack of materials and equipment; bad weather; overlapping of activities; unclear and incomplete drawings; making good defective works; failure to control productivity of resources; theft and vandalism; interference by clients; high labour turnover;

insufficient knowledge on cost control techniques; rather lack of knowledge of techniques; poor management of cost control methodology; poor site organisation; and inadequate supervision. Options for making buildings cost- effective are: adopting sustainable development goals looking at life cycle cost, instead of the initial cost adopting good building design designing green buildings effective and professional project management effective material management effective plant management effective labour management adopting state of art building technologies

LIFE-CYCLE COSTS Life Cycle Cost (LCC) is a financial technique increasingly used in sustainable construction analyses to compare high-efficiency construction materials, systems, and designs with traditional alternatives that initially may be less expensive but have higher operational and maintenance costs. LCC examines varying alternatives that impact the overall costs and savings of a process, product, or process over a given time frame. In addition to considering an appropriate time frame, one must include an estimate of the cost of capital and in some cases an inflation rate. LLC analysis depends on a thorough understanding of the time value of money. A common dilemma confronted by homeowners considering newer green sustainable building systems is whether the use of these technologies can be financially justified. For example, a water heater system that does not use a tank (shown schematically in the figure) is more energy-efficient than a traditional water heater, and therefore, preferable from a sustainability perspective. But, is it a good idea to install one? The

initial cost of this new technology is considerably higher than the initial cost of a traditional water heater, and many owners would be hesitant to adopt it.

Most commonly, the production cost is the main cost factor in construction and is often set to the minimum, which does not necessarily improve the lifetime performance of buildings. However, a higher production cost might decrease the total life cycle cost (LCC). It is important, therefore, to show the construction client in the early design phase the relationship between design choices and the resulting lifetime cost. Today, LCC calculation is used extensively for industrial products to minimise production costs and increase profit. Clearly, there are significant differences between an industrial product and a building from the life cycle perspective. The main differences are the life of a building and the lack of industrialization in the building process, especially during construction. These factors make calculating LCC for a building difficult early in the design process. Life cycle costing is a method assisting in estimating of the total cost of ownership. The technique is able to help make decisions within building investment projects. Life

cycle costing is particularly useful for the estimating total costs in the early stage of a project. The life cycle costing process usually includes the following steps: planning of the life cycle costing analysis (e.g. definition of objectives); selection and development of the life cycle costing model (e.g. cost breakdown structure, identifying data sources and contingencies); application of the life cycle costing model; documentation and review of life cycle costing results. An extensive research has been performed and a report published concentrated on life cycle costing. Nevertheless, life cycle costing is not commonly used in Europe or in the USA. This method takes into consideration any other non construction costs and income. Life Cycle Costs (LCC) represent the overall costs being spent during the building’s whole life cycle. Their structure is presented in below, as a part of the Whole Life Cost (WLC).

Decisions in the life cycle costing process Investors can sight the life cycle costing process of a building as a series of investment decisions. The procedure includes parallel and interrelated phases. A theoretical model (shown) integrates six following steps: justification for investment requirements. conceptual development stage. design stage. production stage. operational stage. end of economic life stage.

The horizontal axis represents a project phase and the time, at which key decisions and life cycle costing analysis need to be performed or updated. The vertical axis represents accumulative costs and costs of purchase and option within the life cycle of a construction project. This also can be seen as the acquisition cost of moving from one stage to another within the life span of a construction project. The utilization of a model should take place as early as possible and continue until the end life of the building. The real series of decisions depends upon the specific project procurement route strategy. Some are following decisions, which could be assigned to the development process, whilst others might be connected with procurement and operational issues. The concept of depicting the life cycle of a building as a series of investment decisions is universal and could contain a diversity of miscellaneous development scenarios. Risk analysis and life cycle costing are conducted at the beginning and updated at the end of each stage of the construction project. Identifying, quantifying, responding and managing cost and risk at each investment stage of a construction project could be a useful framework for comprehension cost and risk strategies. However, it could be a useful framework for all decisions made thorough the life cycle of the building. Decisions concerning the choice of the construction technology and construction materials are not any longer based entirely on technical and economic attitudes, but are becoming increasingly influenced by life cycle cost and environmental considerations.

Basically, it is crucial to establish a device at the design stage that brings together the life cycle costing, service life, environmental life cycle assessment, and risk associated with decisions taken at this stage.

Case Study: Depository Building for Museum The project aims to build a new depository, which will allow relocation of all exhibits from the existing non-compliant repositories to new spaces with appropriate conditions. More than 150,000 exhibits of national and international importance will be saved, with reserves for the next 50 years, on an area of 4600 m2. The proposed feasibility study demonstrated the economic sustainability of the construction project. An important part of the feasibility study was life cycle costing. The minimum, maximum and average levels of life cycle cost have been calculated (final recapitulation of the LCC is shown in Table 2). Construction cost is taken from the author’s database that includes prices of reference depository buildings. Operational costs are estimated on the base of reference depository buildings. Rates of replacements and maintenance are given by studies on the reference buildings.

The result of the study was a recommendation to initiate the preparation of a construction project and integrate the proposed investment plan in the budget of the Ministry of Culture of the Czech Republic. At present (i.e. March 2018), the conceptual development stage is already in progress.

Life cycle costing should be performed as part of feasibility studies to find the most cost efficient solution, as part of all design stages. The optimization potential in the early design phases is significant and also cheap.

Reference: Construction Cost Estimating 101: Learning the Basics. LetsBuild (2019). www.letsbuild.com/blog/construction-cost-estimate-101-basics. Introduction to Cost Estimating. AliJuma Albahrani (2014). Construction Management 4th Edition. Halpin D., Senior B. (2011). Life Cycle Costing in Construction Sector: State of the Art Review. S. Emekci, and A.M. Tanyer. (2018) Importance of Life Cycle Costing for Construction Projects. Renata Schneiderova-Heralova (2018)....