Total cost of ownership - The approach to construction budgets that’s shaping the industry

5 april 2023 in
Total cost of ownership - The approach to construction budgets that’s shaping the industry

As a homeowner or a construction manager, you're probably aware that the initial cost of a building project is only one aspect of the overall cost. The Total Cost of Ownership (TCO or sometimes called Life Cycle Cost Analysis) includes all expenses related to owning and operating a building over its entire life cycle. 

It will surprise most people that the bulk of a building’s cost comes after construction is completed. The large price tag associated with preconstruction, materials procurement, and construction is actually only the tip of the iceberg. In fact, the initial expense of construction can make up only 10% of the TCO of a new commercial building.

Why is it important to consider the Total Costs of Ownership?

TCO is calculated by considering all aspects of initial construction, along with an analysis of the lifetime costs associated with a building. It takes into account not only the cost of construction but also the ongoing costs of maintenance, repairs, energy, and other operating expenses over time. Once all those costs are considered, an appropriate TCO can be determined, which can be critical in affecting the decision-making process of building owners. 

          Decision-making in the first phase of acquiring and constructing a building
          TCO certainly includes all first costs such as planning, design, and construction. Which building materials and systems will provide the best return on investment over the long term? But TCO also includes the cost of accurate handover of data to the owner, including commissioning, which validates that this was the facility purchased and that it is performing as contracted. The owner needs to be able to accept and use the information for the life of the facility.

          Taking sustainability into account
          In addition, buyers can also identify areas where costs can be reduced or optimized, such as in building maintenance, energy-efficient technologies, and sustainable practices. Therefore, optimizing TCO is not only a matter of financial gain but also a step toward a more sustainable and environmentally friendly future. 

          It’s all about maintenance
          TCO also includes the cost of operating and maintaining the facility. A cost that is easily overlooked as the largest amount over a building’s total lifetime. 
          For example, this graph shows the costs of a commercial building over a 30-year period. Initial construction costs account for just 2% of the total, while operations and maintenance costs 6%, and personnel costs around 92%.

          End of life care also comes with a cost
          At the end of a facility’s planned life, TCO includes the cost of disposal and any reclamation. Including this in the upfront assessment will help minimize the use of environmentally unfriendly products. Finally, the implementation of TCO includes business processes to capture life-cycle knowledge to be applied on future projects to refine the model, another completely overlooked facet. 

          What are the benefits of a TCO-analysis?

          Help consumers make informed decisions by providing them with a clear understanding of the total cost of a building over its entire lifecycle. 
          Reduce the total cost of ownership over time by highlighting areas where costs can be reduced or avoided altogether. 
          Ensure that living spaces meet long-term needs by taking into account the durability, energy efficiency, and maintenance requirements of different products and services. 
          Empower consumers to make smart, cost-effective decisions that benefit both their wallets and their quality of life.

          TCO: a major driver for sustainability and offsite construction
          The Total Cost of Ownership is a crucial factor in determining the sustainability of any project or industry.

          “In the offsite construction industry, TCO plays a significant role in driving innovation and encouraging sustainable practices, by incentivizing the use of renewable energy sources, reducing waste and recycling materials.” 

          This approach not only reduces the environmental impact of the construction industry but also lowers costs for building owners in the long run. TCO, therefore, plays a vital role in creating a more sustainable future for the construction industry and the planet.

          Total Cost of Ownership is also relevant for energetic renovation 
          While Total Cost of Ownership should be included in the preconstruction phase of new builds, a similar survey can be done for existing construction. This type of analysis will include the current projected lifetime costs of an existing building, as well as recommendations for ways to reduce TCO. 

          Retrofitting existing systems can as well greatly improve Total Cost of Ownership. Changes to systems including HVAC (heating, ventilation, air conditioning), sensor-backed lighting controls, heat capture and reuse, and others can greatly reduce long-term cost estimates for the operation of a building. 

          Staying ahead of the curve: TCO at BuildUp 
          With a building by BuildUp, you always know the Total Cost of Ownership. We’ll provide customers with a comprehensive understanding of the costs associated with owning and operating their space. By taking a lifecycle approach to design optimization, BuildUp helps customers reduce the TCO of their space over time.

          In addition, BuildUp's emphasis on sustainability and recycling increases the residual value of the building. The focus on energy revenues and decentralized grids can also reduce the ongoing consumption costs and further reduce their TCO.

          This approach aligns perfectly with the broader trend in the offsite construction industry towards more sustainable and efficient processes, which are driven by the need to reduce costs and improve the overall customer experience. This way, we want to help to drive innovation in the industry and stay ahead of the curve.