Capital Projects and Building Assessment

Abstract

The most significant personal expenditure we ever make, both in terms of absolute numbers and as ratios of total assets we hold, is building related. Housing makes up about 34% of the total expenditures, and this percentage has stayed consistently this high over the decades. The potential impact of capital projects on society and individuals is enormous. In addition, inefficient design, operations, and management of buildings have other tangible costs, such as wasteful energy use and harmful environmental consequences. Given the criticalities introduced by inherent expenditures seen in the AEC sector by individuals, societies, and the environment, it appears that evaluating and monitoring capital project delivery is a key function of this sector. This chapter introduces common building capital project evaluation techniques, including post-occupancy evaluation, facility performance evaluation, building feasibility analysis, and simulation-based evaluation. The gold standard of capital project evaluation is Building Commissioning (BCx) and Embedded Commissioning (ECx). Digital modeling such as building information models (BIM) and analysis tools enable interoperable data representation and transfer enables improved design added value analysis. This chapter also introduces these concepts and current challenges and opportunities in the AEC sector.

Exercise 1

At the end of each chapter of this text there is an exercise or two provided for the student of VBD. To start it all out, we provide a Table, below, that summarizes the basics of value assessment for buildings, which will be useful in completing these exercises.

Summary of value assessment in buildings Key variables of value assessment and formulae for determining them

V = p * U; where V = value; p = probability; U = utility; U = B – C; B = benefit; C = cost UV =  Use Value is the value of real property to occupants who use/benefit from a facility EV = Exchange Value is the sale value that would be obtained by “liquidating” the property. NPV = Net Present Value = Sum of all of the estimated expenditures and gains NPV = NPV0 − Σ_[_1_−n] NPVt, NPV0 = r0 * (initial investment)/(1 + (rd * discount rate))0 NPVt = ((rb * benefit) – (rc * cost))/(1 + (rd * discount rate))t where n = number of total years, t a given year, 1 < t < n; r0 = risk of initial investment, 0 < r0 < x; rd = risk of discount rate, 0 < rd < x; rc = risk of cost, 0 < rc < x; rb = risk of benefit, 0 < rb < x; GI = Gain on Investment of a built asset increases over time, DV = Discount Value of features decline over time due to = Opportunity Loss + Depreciation of Product + Operation and Upkeep costs, ROI = Return on Investment; the required rate of return + the weighted average cost of capital, after tax + the reinvestment rate.

Feel free to use this Table as a guide for developing your interpretation of value assessment in buildings. First, select a building you are familiar with and, more importantly, have access to data about its economics. You can also decide to use the case studies included in Chaps. 12 through 17. Contingent on the extent of data to which you have access, make sure you structure your calculations according to the table above.