era | Cost and Value

Get ready - it’s about to get nerdy!

COST: If it is assumed that cost can be defined as the total amount '.. of resources consumed by a project over its expected life', then the following can be deduced with relation to a project. [Best and Valence p.158]

Development Costs

The intrusion into the environment in the extraction of materials for construction

The costs of time and labour placed in constructing the structure

Operational Costs

Maintenance of the building

Indirect Costs

Environmental costs such as deforestation or erosion in collecting materials including timber or earth for construction

BENEFITS: If it is assumed that a benefit can be defined as '.. the positive impacts associated with project implementation', then the following can be deduced with relation to a project.

Direct

Revenue is usually distinguished at the forefront of benefits found in a project, but a project will not always generate yield. Instead the most distinctive benefit comes in the form of a building which can be utilised.

Indirect

This comes in the form of less tangible entities such as sustaining culture, lifestyle and environment.

As a social project with a measurement of high beneficial return to the community it can be assumed that the benefits will outweigh any costs incurred in the development and operational costs of each.

'Social benefit refers to the positive contribution of a project in terms of improving living standards .. [which may even be] arising [beyond] the operational life of a project.' A weighted criteria approach can be used to assess these issues. 

A strategy developed by Ding in 1998 serves an attempt to establish value ratios for non-monetary measures involved in the development process.

WM    Welfare Maximisation

SB     Social Benefit: a high score indicates that social benefit is significant, where 10 is the highest achievable

ER     Environmental Risk: the percentage measure of the long-term impact of the project on the environment

RE     Resource Efficiency

TE     Total Energy: includes both embodied energy and operating energy, measured in GJ/m2 . Where the lowest measure is the better, this measure is made out of 10 again, where 10 is the highest achievable

BCR  Benefit Cost Ratio: the greater the ratio the more profitable the proposal

If it is assumed that Ding's calculations are accepted as veritable indicators of a project's sustainable measurement then the following may be deduced.

The uselessness of cost benefit analyses: 'It is the ultimate goal of CBA to assist those evaluating proposed projects to choose the best option among alternatives .. The methodology .. exhibits .. practical difficulties, which means that its effectiveness as a decision tool may be questioned.' Particularly with relation to intangible assets.

"Method of Hypothetical Development"

Value = land + development cost + finance cost + profit

Theoretically, the value measured for a project is equivalent to the cost of the development. This intimates that, in monetary terms, the building and efforts which were spent in constructing it, alone represent the value of the entire project. This result could also be assessed in a social respect where the benefits which are gained are a direct result of the operation of the building, in both the development and operational stages.

Based on the characteristic nature of such a project future operations cannot be ultimately predicted and therefore there are many uncertainties surrounding conclusions drawn with regard to this analysis. Conclusions can only be drawn to establish the most appropriate choice with regard to the current information available, and assumptions made regarding scenarios for the development of the projects organisation.

The analysis of the economic feasibility of a project provides an outline to assess the viability of a development.

Assuming prices related to the scheme are drawn from existing market prices, projected assumptions can be made regarding funding and therefore financial feasibility for the development.

Revenue and Income

It is here that a distinction in definition be made between revenue and income: revenue being acquired as a result of trade in land or property, while income is the monetary value acquired as a result of products or services provided for by the use of the building. 

Relationship of the Lender to the Equity Investor

Although the lender may have stipulations as to the use of their finances within the construction of the project, and may seek alternative "interests" in the investor dealings in the future, they do not seek to acquire financial gain as a result of income generated from activities undertaken as an outcome of the project.

Return on Investment

Intangible qualities of time and labour can be associated as the investments made to achieve outcomes.

Material costs for this project are predominantly related to acquisition. For these reasons the elements of the building can be categorised according to material, as opposed to distinct areas within the building. Costs occur in the acquiring and processing of materials ready for construction.

The calculations assume that materials are not used from directly on-site.

‘Academics have struggled to codify the influences on built form that they are able to measure. They hope that by enumerating these influences they will be able to identify the most appropriate building form for any given environment. Research into appropriate building techniques for developing countries has focused on the strength, durability and cost of building materials such as stabilised earth blocks and fibre-cement roofing tiles. Mathematical and computer models have been developed to predict the influence of economy and climate on the choice of materials and preferred building shapes. Nevertheless built form, particularly house form, defies prediction. Dwellings constructed at the same time by different people in the same climatic zone with the same access to materials and finance, can be as different as chalk and cheese.

This difference becomes obvious when we accept that the choice of building technology is made as much on the basis of an individual’s or society’s unpredictable subjective response as on measurable statistics such as strength, durability or cost.’

MAURICE MITCHELL

Cost Versus Value.

The financial cost in dollar value of the architecture that is being made may not represent the value of the spaces that will be a part of your every day. It is difficult to measure the value a space designed specifically for you will add to your life.

It is all of the little things included in your architecture that will make every day moments special and valuable to you.

Til next time!

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