How can I calculate the total cost of ownership of a building?
The total cost of ownership (TCO) of a building includes not only the initial purchase price, but also the costs of operation and maintenance. Minimizing the TCO will require accurate and complete data collection, as well as implementing a long-term strategy that can continually measure and improve.
Many factors should be included in the TCO, whether you’re looking at a vehicle, an expensive piece of equipment, or at a building. One simple formula is to take all costs, including initial purchase price and ongoing maintenance and operation costs, and subtract the remaining value of the vehicle, asset, or building.
In the specific case of TCO in regards to real estate, you’ll want to include costs such as electricity, water, HVAC systems, and building envelopes. It’s especially critical to take TCO into account during construction phases of a new building, particularly with the rise of environmentally sustainable technologies for building construction and energy usage.
Importance of Increasing Visibility During New Construction
According to The National Research Council, the initial cost of a building represents only 15 percent of the TCO. However, during the planning, design and construction phases, there is often a great deal of focus on how to reduce the building and construction costs, without considering the long-term implications for the life of the building.
Industry professionals stress that this narrow-mindedness must change so that long-term visibility can play a role during new construction and design decisions. Over the decades, the operation, maintenance, energy, and renovation costs can take a much more significant bite out of an owner’s bottom line.
One idea is to increase the accountability that design and construction decisions make on ongoing costs, such as landscaping, janitorial, energy, staffing, and security decisions. Applying better financial analysis to weigh decisions against long-term costs and benefits would be one approach to better estimate TOC.
How to Minimize TOC
Minimizing TOC must be driven by the decision-makers who need to create and communicate a vision and set expectations across an entire organization.
Once this is established, set up teams that are accountable for cross-functional metrics. For instance, purchasing inexpensive HVAC equipment may save money in the short-term, but the labor, repairs, energy, maintenance and early replacement costs may be far more expensive in the long-run than the cost of investing in high-efficiency equipment in the first place.
Being diligent in collecting and analyzing operation and maintenance data, and then making smarter business decisions as a result is critical to fostering a proactive environment to minimize TCO in the long term.
Remember that all departments should be focused on the lowest TCO as a whole, and not evaluating costs in individual silos, which can result in competing and conflicting objectives.
Best Initiatives to Reduce Building TOC
Green initiatives are perhaps one of the best areas of focus to reduce TOC of buildings, especially during major renovations or new construction.
Many renewable energy alternatives are available today including solar and wind power as well as geothermal heating options. In addition, a building can be designed to be more energy efficient with quality insulation, windows, doors, and building materials. Not only are these decisions politically and socially accepted, but also they will reduce your TOC in the long-run.
Implementing maintenance processes and technologies to move your building from primarily an emergency maintenance focus to one that embraces predictive maintenance will also result in reducing TOC.
By having all your maintenance history, work orders, and systems information in one place, your maintenance manager will be able to anticipate and plan maintenance activities before costly repairs are needed.
Reduce facility operating costs by looking at seemingly mundane things like lighting, heating, ventilating and air conditioning (HVAC) systems, and temperature; overall maintenance programs; and business-specific situations. By taking advantage of the opportunities available in your own company, you’ll be able to successfully save time and money.
Although operating costs can sometimes seem small, items such as temperature, lighting, and HVAC systems form a foundation for most facilities and consume a great deal of the regular operating budget. Finding ways to reduce costs in these areas can add up.
Simple steps adapted from home energy ideas can make a significant difference in a commercial facility. For example, using solar shading, or louvered shutters or roof vents can help manage natural light and heat from the sun. Setting a facility water heater to a reasonable temperature can also reduce energy usage over time.
For those companies operating large warehouses, consider heating and cooling only human-occupied workstations. Inspect windows, doors, garage bays, and air ducts for leaks, sealing opportunities and insulation.
One simple but significant lighting change is to replace incandescent lightbulbs with LED counterparts. Not only do LED bulbs last nearly 50 times longer, but also you’ll be saving all that maintenance labor time spent changing bulbs.
If you are closed or run a small shift during night hours, reduce your site lighting to only the areas where employees are working, around the perimeter of your buildings, and to ensure emergency paths are visible. Don’t forget little things like removing light bulbs from vending machines or installing motion-detection lights in appropriate areas.
A working heating and cooling system is paramount in most facilities. Although some major overhauls in an entire system to new technologies such as geothermal heat pumps may save significant long-term costs, most facilities can save a great deal if they just prioritize biannual preventive maintenance.
Compressed air leaks and failed steam traps
Within industrial companies, management teams might want to focus on compressed air leaks and failed steam traps. According to Plant Services, many studies illustrate that about one-quarter of all compressed air produced is wasted, due to leaks. This could mean an extra $20,000 is spent per year funding air compressor leakages. Leaks can be detected with ultrasound technology, or by using a flowmeter to look at performance during non-production periods. Steam trap problems result in leakage and lost energy as well.
Shifting From Reactive to Predictive Maintenance
Reactive maintenance is usually more expensive in the long-run than preventive maintenance. As facilities implement technologies and tools to move them away from emergency or reactive situations, they will start to reduce their operating costs in these areas. Over time, if used properly, a computerized maintenance management system (CMMS) can help track historic data and monitor predictive data from sensors, leading to even greater cost savings.
Other cost-saving opportunities abound within operations that are specific to particular industries and businesses. To identify these opportunities, pull together all the relevant team members at your facility and brainstorm what they see in their daily work.
For instance, a custodian might notice that multiple employees have taken it upon themselves to plug in space heaters in individual offices. This can be a significant source of energy usage, as well as affect the overall HVAC operation of a facility. Although this example can be applicable in multiple industries, others may be particular to a specific market.
Businesses that operate commercial kitchens or food storage equipment will have different opportunities to reduce operating costs. In this case, the amount of time equipment, such as ovens and fryers are running may be too long, inefficient workflow may offer opportunities, and properly maintained equipment can save money in the long-run.