ASAP

Amity School of Architecture & Planning

3rd Year 6th Semester
Building Economics
Lecture Notes
Ar. Richa Kushwaha

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 ASAP

Module II- Economics in relation to architecture,

engineering and other sciences

• Meaning and scope of building economics, Issues and

challenges associated with building projects.
• Building Efficiency,
• Building Life-cycle.
• Costs and Benefits of Building/ Cost Benefit Analysis

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 Introduction to Building Economics ASAP
BUILDING ECONOMICS/ ASSET MANAGEMENT TOOL

•Construction projects almost automatically give rise to many tricky questions.

• How feasible is the proposed development?
• What are the hidden costs, how can they be recognised, when can they arise?
• How long does it take for your investment to be recovered?
• These are all important considerations, which ideally should be defined as early
as possible.

That is not always easy

Building Economics is therefore a valuable tool.

• Building Economics is concerned with all economic aspects of construction

projects – from planning, design and implementation to the completion.

• Building Economics is hugely relevant at the moment, whole life-cycle costs,

running costs and other considerations have given rise to many exciting new
products and methods.

•The scarce means like land, building materials, and allied services result in failing to meet
the demand in housing sector. 3
 Introduction to Building Economics ASAP

NATURE AND SCOPE OF BUILDING ECONOMICS

•Scope of study is limited to demand & supply, cost, project costing, benefits of
buildings, economic performance of building, life cycle cost analysis, rate of return
analysis, value engineering and feasibility analysis.

•The economics of the various production processes including transportation

processes, is included in the study.

•The economics of the processes of planning and designing buildings is included in

the building economics
ISSUES AND CHALLENGES ASSOCIATED WITH BUILDING PROJECTS.

•The decision making and design problems

•Concerns of specific group involved in the building process
•Concerns of the overall economy
•Governmental or societal policymaking issues for overall effectiveness of the entire
system of building process.
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 Introduction to Building Economics ASAP
• Building owners generally wish to lower costs or increase profits.

• To accomplish this, buildings must be located, designed, engineered, constructed, managed,

and operated with an eye to the economic consequences of these decisions.

• Owners need to select locations which enhance revenue opportunities, or lower costs, or
both.

• Architects need to consider the owning and operating costs of alternative building designs.

• Mechanical and structural engineers need to take into account the economy of alternative
designs and sizes of building systems and components.

• Architects and engineers need to work together to make economic tradeoffs between the
building envelope and mechanical systems.

• Construction companies and builders need to select cost-effective materials, equipment, and
construction techniques.

• Building managers and operators need to establish cost-effective maintenance, repair, and
replacement policies, and to decide when and what to renovate.

• In short, those who design, engineer, construct, manage, operate, and own buildings are
faced with numerous decisions which affect the economics of buildings
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 BUILDING EFFICIENCY ASAP
INTRODUCTION
•In India, 30 to 40% of all primary energy is used in buildings.
•The main aim of building efficiency is to produce buildings with a minimum of
environmental impact, plays a major role in minimizing overall energy consumption
and cost.
•Around the world, the private and business divisions utilize 2,589 Mtoe (Mega tonnes
of oil equivalent) in energy, which represents very nearly 40% of final energy use on
the planet.

•There is a need for developing overarching technological solutions that can achieve
crosscutting reductions in energy consumption at minimum cost. 
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 BUILDING LIFE CYCLE ASAP

• Building life cycle refers to the view of a building over the course of its entire life.

• In other words, viewing it not just as an operational building, but also taking into
account the design, construction, operation, demolition and waste treatment.

• It is useful to use this view when attempting

to improve an operational feature of a building
that is related to how a building was designed. DESIGN/

• In the vast majority of cases there is less than

sufficient effort put into designing a building
to be energy efficient and hence large
inefficiencies are incurred in the
operational phase. DEMOLITION &
WASTE TREATMENT

BUILDING LIFE CYCLE

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LIFE CYCLE COSTASAP

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 BUILDING LIFE CYCLE COSTING ASAP
• Life Cycle costing approach is an economic method to assist in the decision making
process and to identify cost effectiveness of different design options and sensitivity of
the cost resulting of the prices evolutions for products, services, energy and human
operation in the building life cycle, from inception to the demolition of the building.

• This approach and its results support the investor and/or the owner of real estate to
increase the consideration for life-time costs of buildings rather than just the initial costs
of design and construction.

• Even the information on LCA costs is too limited and the precise calculation is not
possible or economically viable, different available or easy to acquire information can
give good insight into this topic and can help investor to make better decisions from
life cycle point of view.

• Case Study of Life cycle cost – class exercise.

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 LIFE CYCLE COST STRUCTURE ASAP

•Operating Cost includes the

/
OPERATING
COST costs of maintenance,
operation, repair, energy (all
types) and water are to be
considered. Costs for
Residual Value or End of life maintenance and cleaning
stage includes the costs for demolition and activities shall be aligned with
disposal.  The costs for disposal are the management system of
introduced in the calculation as a percentage the building.
of the buildings products costs (varying from
2% to 10%, depending on the type of
process used for the demolition and the type
of construction elements). Lowest rate are
used for light structure (wood) and high
potential for disassembly and
recyclability/reuse of material, whereas
higher rate are used for concrete structure in
urban area or when hazardous substances
(asbestos, etc.) need specific care before 10
WHY LIFE CYCLE COST? ASAP

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 COSTS AND BENEFITS OF BUILDINGASAP

• As with all business decisions, the “build or not to build” decision depends on
a cost-benefit analysis.

• The essential aspects of conducting a life-cycle cost analysis (LCCA) and

determining the cost-effectiveness of any given construction alternative are
the identification of all the relevant inputs and outputs and quantification, when
possible, of these as costs and benefits to facilitate informed decision making. 

• Costs can be more readily quantified than benefits because they normally
have TANGIBLE amounts attached.

• Benefits are difficult because they often tend to have more INTANGIBLES.

• In analyses, benefits should be as important as costs and deserve to be

brought to the attention of decision makers.

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 COSTS AND BENEFITS OF BUILDINGASAP
• Before taking on a new project, managers conduct a cost-benefit analysis to
evaluate all the potential costs and revenues a company may be generate if
upon completing the project.

• The outcome of the analysis will determine whether the project is financially
feasible or if the company should pursue another project.

• The first step in the process is to compile a comprehensive list of all the costs
and benefits associated with the project or decision.

• Costs should include direct and indirect costs, intangible costs, opportunity
costs, and the cost of potential risks. 

• Benefits should include all direct and indirect revenues and intangible benefits,
such as increased production from improved employee safety and morale, or
increased sales from customer goodwill.

•  The analyst should then apply a common unit of monetary measurement to

all items on the list, taking special care not to underestimate costs or
overestimate benefits.  13
 COSTS AND BENEFITS OF BUILDINGASAP
• A conservative approach with a conscious effort to avoid any subjective tendencies
when calculating estimates is best suited when assigning a value to both costs and
benefits for a cost-benefit analysis.

• The final step is to compare the results of the aggregate costs and
benefits quantitatively to determine if the benefits outweigh the costs. 

• If so, then the rational decision is to go forward with the project. 

• If not, the business should review of the project to see if it can make adjustments to
either increase benefits or decrease costs to make the project viable. Otherwise, the
company may abandon the project.

• The point is to relate the costs to the values or benefits received in return for the
costs; the concept of economic performance tries to express this more general
concern.

• Case Studies of Real Estate project- Class Exercise

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