Whether it’s saving money or saving the planet, being green can be rewarding in many different ways. We’ve all heard the endless debate over the past few years about the cost of being green. The key word here is cost. These debates almost always focus on initial cost, do not look at life cycle cost, and often do a poor job of ever quantifying benefits. In some way, I think we’re missing the point. Though the motivation for being green is not always money, the funny thing is that it will almost always turn out that being green will actually allow us to put some green back in the bank.
Remember the triple bottom line of sustainability” You know… the Social, Environmental and Economic aspects of sustainability. Each one of these has a benefit. Some may take longer to realize, but they can all be linked to saving something in the end. It may be resources, energy, time (yes, even time!), money, or a host of other benefits.
Let’s look at economics. (Don’t be scared.) We’ll use an example to which we can all relate – our cars. If you were in the market for a car today, you might be tempted by those cool looking SUV’s. After all, they can haul anything, go anywhere, clean up nicely, and get you to the opera after a long day of off-roading. At least that’s what the advertisements would lead us to believe.
Your alternative is a nice, fuel-efficient sedan that’s clean, economical, and won’t embarrass you when you pick up your kids at soccer practice or go out on your next hot date. (We won’t even consider the new hybrid vehicles yet – we’ll leave that discussion for a later article.)
Most people will make a buying decision based on their monthly payments – and who doesn’t stretch those when you’re in the showroom with one of those sleek new SUV’s” But what about maintenance and fuel costs” We all know by now that the SUV is far less fuel-efficient than the sedan, but who takes the time to figure out the math” Usually, we engineer-types do!
Fuel For Thought
If you did do the math, then you would find out that an average $35,000 SUV actually costs you about $62,000 over a five year period ($35,000 sticker, 6.9% interest, $1,200 annual maintenance, 15 MPG, 20k miles per year, $2.19 per gallon average fuel cost). On the other hand, the sedan would cost about $42,000 over the same five years ($25,000 sticker, 6.9% interest, $800 annual maintenance, 25MPG, 20k miles per year, $2.19 per gallon average fuel cost).
That’s almost 48% higher, or about $325 per month more for the SUV every month for 5 years. I will go out on a limb and guess that most people don’t base their car buying decisions on total cost of ownership – but shouldn’t we” In this example, about a third of the difference in cost of ownership is in fuel efficiency. But I didn’t even pick a particularly expensive SUV, or a tremendously fuel-efficient sedan. If I had, this example would show a far greater difference in ownership cost. And who’s to say that the price of gasoline will hold steady at an average of $2.19 per gallon over the next five years”
Some of you left-brained thinkers (and fellow engineers) will look at this example and shoot holes in the example with arguments about things like maintenance costs or the average number of miles driven per year. The point is – no matter how you figure it – there is a lot more to making our buying decisions when we account for maintenance, fuel, our driving habits, and other factors. And admit it – we don’t always use this long-term logic when we buy a car!
On The Road Again
So what does this have to do with sustainability” Well, let’s apply the same logic to a building and see what happens.
If we were to build an $80 million office building (600,000 square feet) and operate it over a 50-year period, the total cost of ownership would be over $2 billion – that’s assuming about $5.00 to $6.00 per square foot annual operating cost and a capital renewal annual budget of about 1.5% of current replacement value. In this case, the initial construction cost accounts for less than 5% of the total dollars spent on the facility over its life cycle. That’s compared to about 50 to 60% of total ownership costs to purchase either of the cars used in the previous example.
So why is the difference a factor of 10″ Again, there are some left-brained thinkers out there questioning why I didn’t use Present Value analysis, account for depreciation, etc., etc., in these examples… and that would be a legitimate question. However, although the percentage of total costs change when bringing everything back to present value, the operating costs still remain a large portion of total cost of ownership.
Again, why the big difference between the car example and the building” Much of the answer lies in expected service life. Since the expected service life of a building is far greater than the vehicle we drive, the initial cost is likely to be smaller percentage of total ownership cost. THAT’S why sustainability in buildings is so important!
Fast Track To Savings
Sustainability and green building practices have a huge impact on operating costs – much more so than on initial cost. A $1.00 per square foot reduction in operating costs in our building example can lead to a savings of $30 million over the life of the building. If it costs 5% more to build that same building in a green manner, then our payback period for that investment is less than seven years.
Seven years may not impress a lot of short-term commercial building owners, but it will most certainly generate some interest in those owners that operate their buildings over the long haul. And, seven years is only about 14% of its expected service life. Also, what if we were able to stretch those savings to $1.50 or $2.00 per square foot” Imagine the savings and shortened payback period then! These savings numbers are not unheard-of in modern high-performance green buildings.
Sustainable practices are also an effective hedge against rising energy costs. It will continue to get tougher and tougher to save operating dollars in the face of higher costs, so cost-avoidance may become the norm in facility management.
Shift Into Green Gear
So if we are going to take a closer look at total costs of ownership the next time we buy a car, why not do the same with our buildings” Sustainability and high-performance green buildings give us a perfect methodology for maintaining steady, or lowering operating costs AND choosing building components and systems with longer service lives, thus reducing capital renewal costs.
In the building example, we have far more issues to consider, such as depreciation of capital dollars, appreciation in asset value, discount rates, inflation rates, availability of capital vs. operating dollars, etc., but the economic argument for green buildings is a solid one, and goes far beyond the current debate over higher first costs. And that’s only if you truly believe that there is a higher first cost, which is not always the case. Also recognize that adding these other economic factors often adds more to the business case for sustainability.
It’s Up To You To Drive The Pace Car
By now, if you are convinced that you need to look harder at operating costs the next time you buy a car, then you should be totally convinced that you should be using total cost of ownership modeling the next time you buy, design, or build a building.
No matter what your motivation – saving money or saving the planet – green buildings are definitely worth investigating. Sometimes, we just need to change our perspective and start looking at value, not just cost. If we do, then sustainable practices will start to make a lot more sense.
Having trouble convincing your clients of the value of green” Just ask them what kind of car they drive and see if they have ever considered what it’s costing them. I suspect that the hybrid vehicle drivers have already figured out the value of green buildings. On the other hand, for the SUV drivers, we may have just discovered where they are spending all the money they’ve saved on green buildings!
Chris Hodges is a Principal with Facility Engineering Associates, with offices in Washington, Dallas, Denver, and San Francisco. He is a Registered Professional Engineer (P.E.), Certified Facility Manager (CFM), and Fellow of the International Facility Management Association.