Total Cost of Ownership: A Smarter Approach to Construction Budgets

 

When planning a construction project, the initial budget is just the tip of the iceberg. The Total Cost of Ownership (TCO) approach looks beyond upfront expenses, considering long-term costs such as maintenance, energy efficiency, and durability. This method helps developers, architects, and investors make smarter financial decisions while ensuring sustainable and cost-effective buildings.

Let’s explore why TCO is reshaping the construction industry.

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As a homeowner or construction manager, you’re probably aware that the initial cost of a building project is only one aspect of the overall cost. The Total Cost of Ownership (TCO), sometimes called Life Cycle Cost Analysis, includes all expenses related to owning and operating a building over its entire life cycle.

It may surprise many that the bulk of a building’s cost comes after construction is completed. The significant price tag associated with preconstruction, materials procurement, and construction is actually only the tip of the iceberg. In fact, the initial expense of construction can make up only 10% of the TCO of a new commercial building.

 

Why is it important to consider the Total Costs of Ownership?

TCO is calculated by considering all aspects of initial construction, along with an analysis of the lifetime costs associated with a building. It includes the cost of maintenance, repairs, energy, and other operating expenses over time. Once all those costs are considered, an appropriate TCO can be determined, which can be critical in affecting the decision-making process of building owners.

 

Why is it important to consider the Total Cost of Ownership?

TCO is calculated by considering all aspects of initial construction, along with an analysis of the lifetime costs associated with a building. It includes the cost of maintenance, repairs, energy, and other operating expenses over time. Once all those costs are considered, an appropriate TCO can be determined, which can be critical in affecting the decision-making process of building owners.

Decision-making in the first phase of acquiring and constructing a building

TCO includes all first costs such as planning, design, and construction. It also considers the cost of accurate handover of data to the owner, including commissioning, to ensure that the building performs as contracted.

Taking sustainability into account

TCO analysis helps identify areas where costs can be reduced, such as in building maintenance, energy-efficient technologies, and sustainable practices. Therefore, optimizing TCO is not only a matter of financial gain but also a step toward a more sustainable and environmentally friendly future.

It’s all about maintenance

Operating and maintaining a building is often the most significant cost over its lifetime. For example, in a 30-year period, initial construction may account for just 2% of total costs, while operations and maintenance make up 6%, and personnel costs account for around 92%.

End of life care also comes with a cost

TCO includes the cost of disposal and reclamation. Proper assessment in advance helps minimize environmentally unfriendly products and capture life-cycle knowledge to refine future projects.

 

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What are the benefits of a TCO-analysis?

 

  • Help consumers make informed decisions by providing them with a clear understanding of the total cost of a building over its entire lifecycle.
  • Reduce the total cost of ownership over time by highlighting areas where costs can be reduced or avoided altogether.
  • Ensure that living spaces meet long-term needs by taking into account the durability, energy efficiency, and maintenance requirements of different products and services.
  • Empower consumers to make smart, cost-effective decisions that benefit both their wallets and their quality of life.

 
 

TCO: a major driver for sustainability and offsite construction

TCO is crucial in determining the sustainability of any project or industry.

“In the offsite construction industry, TCO drives innovation and encourages sustainable practices by incentivizing renewable energy use, waste reduction, and material recycling.”

This approach reduces environmental impact and lowers costs for building owners in the long run, contributing to a sustainable future.

Total Cost of Ownership is also relevant for energetic renovation

TCO should be included in new construction planning, but it also applies to existing buildings. Retrofitting systems such as HVAC, sensor-backed lighting, and heat capture can significantly lower TCO.

Staying ahead of the curve: TCO at BuildUp

With a building by BuildUp, you always know the Total Cost of Ownership. Our lifecycle approach helps customers reduce their TCO over time. Additionally, BuildUp’s focus on sustainability and energy efficiency increases building value while reducing operational costs, aligning with industry trends towards cost-efficient, sustainable construction.

 

Sources:

https://www.mckinsey.com/capabilities/sustainability/our-insights/net-zero-or-growth-how-belgium-can-have-both#/ 

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