Lifecycle Triple Bottom Line Approach for Evaluating High-Performance Building System Investments

How to Determine the Full, Long-Term Value of High-Performance Building Investments

Is investment in a high-performance system in a new facility or renovation worth a higher first cost? 

If you use traditional methods to answer that question, you may find the high-performance alternative quickly eliminated through value engineering – and you may never realize the long-term payoff, the advantages for people who occupy the building, and the environmental benefits. 

“One of the limitations of current facility design decision making is the first-cost, or short-term, view,” said Robert Ries, Professor in the Rinker School of Construction Management at the University of Florida. “In many cases, we don’t incorporate the life cycle of that facility, including operational expenses, maintenance and repair costs, replacement of different components, and other costs over time.” 

New research from the Construction Industry Institute’s Facilities and Healthcare Sector looks at how expanding the first-cost view can better inform facility investment decisions. Led by Ries and co-Principal Investigator Vivian Loftness, Professor in the School of Architecture at Carnegie Mellon University, the research calculates the costs of high-performance facility investments in two national case studies, then analyzes the benefits over a 30-year period.  

In addition to traditional life cycle cost analysis, the research team added a triple bottom line framework, incorporating the long-term financial, environmental, and human benefits of high-performance systems. The case studies serve as resources to help decision makers implement this approach.  

“[This research] really struck me as opening a new dimension for most of us in design/construction,” said Walt Ennaco, recently retired Deputy Director for Smithsonian Facilities and Director of the Office of Planning, Design, and Construction at the Smithsonian Institute. “It’s clear and concise. It offers a simple, easy way to generate a different perspective in your early design that can save you lots of money and make your clients want to be in the building.” 

What is Triple Bottom Line Life Cycle Cost Analysis? 

Determining the true cost and benefits of a building and its systems requires looking at multiple factors. 

“It’s not just the design and construction costs; it’s the cost for the next 30 years,” Ennaco said. “You can build a nice building, but then it can be a bear to maintain.”  

Alternatively, a life cycle triple bottom line approach supports design and engineering for buildings with reduced operational costs, improved environmental performance, and a greater user experience. 

Life cycle cost analysis has long been mandatory for federal facility projects to aid in the selection of the design with the lowest overall cost of ownership.  

“The National Institute of Standards and Technology (NIST) Life Cycle Costing Manual from 1995 set up a structure for life cycle costing of facilities with initial costs, energy costs, operations and maintenance, and so on,” Ries said. “The NIST manual also mentions non-monetary benefits and costs, but the implementation of this has been limited. One of the goals of our research project was to establish those non-monetary benefits as meaningful components of facilities decision making and analysis.” 

“Adding natural and human aspects to life cycle costs really changes the planning and programming for most projects,” Ennaco said.  

John Elkington and other economists coined the term “triple bottom line” in the late 1990s. The triple bottom line accounting framework gets at the total cost of ownership by deliberately calculating three bottom lines of financial, natural (or environmental), and human capital cost-benefits.  

Techniques exist for measuring natural capital, such as air quality benefits and carbon savings based on energy reduction.  

However, “The toughest benefits to quantify are the gains in human capital,” Loftness said. “[Many people] know that productivity and health are critical factors in why we build better buildings, but they don’t necessarily know how to quantify that. In this research project, we show how some of this is quantified alongside environmental gains to our shared resources.” 

Calculating all three bottom lines provides more complete and compelling information. In fact, “Where we really see a large potential payoff is in the human capital,” Ries said. “Considering all three aspects when investing in a high-performance facility allows you to identify the benefits and, in the end, optimize the value of the facility to the organization.” 

Developing the Case 

In each of the case studies, researchers captured high-performance system investments in landmark building projects. They used life cycle triple bottom line calculations to determine the benefits over the building’s first 30 years of use. The case studies look at long-term return on investment (ROI), dividing annual benefits by first costs to establish years of payback, and then utilizing successive net present value (NPV) calculations to quantify future benefits to building users and the environment, discounted back to net present value. 

For each analysis, researchers first looked at financial capital costs and benefits, then compared that baseline to financial + environmental, then financial + environmental + human capital benefits.  

“These calculations offer comparisons between traditional life cycle costing and an approach to the triple bottom line,” Ries said. 

To help decision makers apply the case study calculations to high-performance system investments in their own projects, “The assumptions are completely obvious and cited, so when anyone uses the calculations, they can customize the assumptions to suit what they know or believe relative to their facility or region,” Loftness said. 

The sections below briefly highlight some of the findings. Deep dives into full costs and benefits of the high-performance systems analyzed in the case studies – as well as the researchers’ complete methodology – can be found in the full report.  

Smithsonian Museum Case Study 

The National Museum of African American History and Culture was dedicated in 2016 as the newest Smithsonian museum on the National Mall in Washington, D.C. In this case study, researchers looked at three of the facility’s innovative systems to measure their long-term value.  

The first analysis focused on the building’s four, nested thermal conditioning zones, which support different environmental conditions for artifacts in the exhibit cases, visitors viewing the exhibits, the large circulation/education and entertainment space, and the artistic shading layer (Corona) that wraps around the building’s glazed curtainwall. With life cycle triple bottom line calculations, a $41.3 million investment in the thermal conditioning zones resulted in a cumulative 30-year NPV of $83 million, an increased ROI, and a 7.7-year payback period.

The second analysis centered on the museum’s extensive stormwater collection and reuse system. Adding long-term environmental and human capital savings to financial capital savings reduced the payback period of the $5.5 million investment from 20.2 years to 6.4 years, while improving ROI from 4.95% to 16% and increasing NPV to almost $9.8 million.

The third analysis explored the benefits of the building’s high-performance HVAC system – including fan wall technology, increased outside air delivery with enthalpy recovery, electronic filtration, and chilled beams – with an initial cost differential of $5.4 million. Adding environmental and human capital benefits to the financial benefits of operational savings increased the ROI from 5.6% to 49%, while also increasing NPV and reducing the payback period to just two years. 

NASA Office Building Case Study 

At Florida’s Kennedy Space Center, NASA consolidated multiple buildings constructed in the 1960s into a central headquarters facility. The new seven-story, 200,000 square-foot building houses 500 NASA employees, as well as shared services and shops. 

The first analysis in this case study examined the decision to replace the aging facilities and consolidate them into one high-performance building. Based on life cycle triple bottom line calculations, $87 million in initial costs will be paid back in 16 years, with a $107.8 million reduction in life cycle costs over 30 years.  

The second analysis centered on high-performance building systems (envelope glazing and shading, LED lighting, a chilled beam system, occupancy sensors, a high-SRI roof membrane, and energy-efficient elevators). Adding the long-term environmental and human benefits to financial benefits reduced the payback period of the $3.4 million investment to seven years, while increasing ROI and NPV. 

The third analysis looked at the photovoltaic panel array that generates carbon-free energy for the facility. Based on life cycle triple bottom line calculations, the $5.9 million investment results in a 30-year NPV gain of $5.8 million, with a 23-year payback period and higher ROI given the environmental and financial cost-benefits.  

What It Means 

For some high-performance building system investments, the first bottom line of financial capital benefits over a moderate time period is enough to pay for the advanced technologies. However, the second bottom line of environmental capital benefits generally shortens the payback period slightly, while achieving significant corporate or federal goals related to climate change. In the third bottom line, human capital gains often overwhelm the first costs with financial benefits over time, due to the major effect buildings have on occupant health and productivity. 

Ultimately, the life cycle triple bottom line approach provides a more complete picture for evaluating high-performance building system investments. 

For more information please see CII’s Webinar: Lifecycle Costing Analysis and the Triple Bottom Line - An Update from the FHC Research Team.

 


Date posted: May 18, 2021

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