March 17, 2005

How to fit green into your budget

  • Don't ask what it's going to cost — decide what you want to spend
    Paladino & Co.

    Too often the decision to build a green building comes down to the question "How much does green cost?"

    Recent studies have shown the increase could be anywhere from 0 percent to 8 percent. Clearly there is a lot of room to maneuver within such a wide spread.

    A more effective question is "Where do I want to invest the money I have?"

    There are many benefits from using green building strategies — strategies that can save resources such as energy and water, or improve indoor air quality. The benefits are varied and will depend as much on the type of project you are building as any other factor. Here are a few examples:

    Health care: The nursing shortage has made it imperative to create healthy, daylit working environments that can help hospitals recruit and retain staff. Competitive markets mean attracting patients by providing an environment where they can heal faster. Tight budgets mean that lower utility costs can enable investment in other areas.

    Schools: Studies show that students perform better when daylighting and views are designed into the classroom. Teachers have said the quality of their classroom environment is more important to them than pay increases. Reduced utility bills can make more resources available for educational tools.

    Commercial offices: Daylighting and good indoor air quality have been shown to improve productivity and reduce absenteeism. For every $1 reduction in utility bills, building valuations increase $7 to $10.

    Set your goals

    Determining what role you want your building to play in your organization's mission (such as a recruiter, performance enhancer or productivity enhancer) will lead you to determine the benefits you want and the level of performance you require to achieve them. Once you've determined your performance goals, you can begin to investigate the strategies that will achieve those goals.

    The strategies you employ can be low cost or high cost. For example, components of a good daylighting strategy can range from using white paint, which increases reflectivity, to installing electronic louvers that track the sun and reduce glare automatically.

    But how much an owner is willing to spend on any one strategy or component should not be determined merely by the cost of that strategy or component, but rather by the cost-benefit ratio of employing that approach.

    Rather than ask "How much does it cost?" the more important question is, "How much am I willing to invest to obtain the level of performance I want?"

    A cost-benefit ratio assumes that the benefits of the strategy outweigh the cost by at least 100 percent — meaning that you will recover at least 100 percent of the cost of the strategy. This equation can be made more complex by factoring in the time value of money, but for the simple evaluations, calculations should be conducted in today's dollars.

    For example, after a long-running employee dispute over window offices, the owners of a downtown Seattle office building added a number of features to elevate natural light levels.

    Improvements included new lighting controls that dim unneeded electric lights and turn them off when the office is unoccupied.

    The controls added about $9,000 to the project. A utility rebate brought the cost down to $5,200, and the expected energy savings was $840 a year. The controls, then, would pay for themselves in 6.26 years, with a cost-benefit ratio of 191 percent.

    Since these lights can also be operated manually, the owner considered eliminating the automatic controls and saving the $5,200. But the design team calculated the sensors would save employees several minutes a day they would otherwise spend turning lights on and off. Those lost minutes translated to a 1 percent loss in productivity, adding up to $29,720 a year.

    Factoring in the productivity savings, the sensors would pay for themselves in two months, bringing cost-benefit ratio up to a lofty 6,963 percent.

    Many recent studies have shown that employee productivity rises between 1 percent and 16 percent with exposure to views and more natural light.

    Similarly, the owners requested to examine indoor air quality because several employees had allergies. Their multipronged strategy to improve air quality added approximately $20,000 to the budget.

    Since these strategies would not reduce any operating costs, they would never pay back, and the cost-benefit was 0 percent. These numbers would indicate these strategies would not be a cost-effective investment.

    However, when the owners calculated the number of employee sick days from previous years and assumed a modest decrease, they calculated an estimated savings of $100,000 a year in sick pay and temporary staff.

    The investment now went from a 0 percent cost-benefit ratio to a 6,588 percent cost-benefit ratio, and from a strategy that would apparently never pay back to one that would pay back in just two months.

    Cut here, add there

    These examples show that evaluating where you spend your money is as crucial as how much you spend.

    We've been taking an informal poll around the country over the last few months. Over 95 percent of the projects that include green features do not have additional money available to support those features.

    So what are your options if you have a project in which the goal is to improve performance, but not increase cost?

    One strategy is to shift costs between parts of the budget. By taking money out of areas that do not offer a positive cost-benefit ratio, owners will have the resources to put their money into systems and strategies that will provide a healthy return on their investment.

    Cost shifting also includes finding strategies that cost less, not more, to put in place. A number of green building strategies can reduce costs, and they should always be considered in order to make more money available for strategies that cost more.

    For example, many developments are able to cut significant costs by using narrower roads, reducing their width from 40 feet to 25 feet. Narrower lanes not only cut costs by 30 percent to 40 percent — studies show that people will drive slower, which reduces accidents.

    Parking infrastructures are expensive. Reducing parking can drastically cut budget costs. Where that is not feasible, using natural stormwater management systems such as earth berms and bioswales will cut down on the need for more infrastructure-intensive strategies such as bumpers, gutters and storm drains.

    Where you invest your budget should be driven by the benefits and the level of performance it will take to get you there. Not only are you more likely to improve the performance of your building without increasing your first costs, you will reap the financial benefits that will continue to accumulate over the life of the building.

    Kristin Ralff Douglas is the director of business development and programs for Paladino & Co., a green building consulting firm.

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