How to Make Budgeting Decisions

8m 46s

In this ARE 5.0 NCARB-approved Project Planning and Design Exam Prep course you will learn about the topics covered in the ARE 5.0 PPD exam division. A complete and comprehensive curriculum, this course will touch on each of the NCARB objectives for the ARE 5.0 Project Planning and Design Exam.

Instructor Mike Newman will discuss issues related to the generation or evaluation of design alternatives that synthesize environmental, cultural, behavioral, technical and economic issues.

When you are done with this course, you will have a thorough understanding of the content covered in the ARE 5.0 Project Planning and Design Exam including design concepts, sustainability/environmental design, universal design, and other forms of governing codes and regulations. 

So we've been talking a lot about having a lot of different options available to us and then making final design decisions, like how do we make those decisions. Well obviously one of the biggest decision making factors is going to be cost. And so one aspect of that is just the idea of the first cost, how much does something cost? You might think about that from both the material and an installation standpoint. I might think well, I'm going to use vinyl siding for example. How much does vinyl siding cost and how much does it cost to hire somebody to put it up?

So that is a pretty straightforward idea of just cost, first cost. Then if I'm comparing that, I might compare it to say veneer brick or wood siding, something along those lines. And I can then have a pretty clear understanding that the vinyl siding is probably significantly cheaper than the wood siding, which is probably a little bit cheaper than the veneer brick. So we have kind of a clear set of definitions about what costs more, what costs less.

That's a useful thing to know, and it's an important thing to know, but it's only part of the story. So the other aspect that we usually think about here instead of just thinking about first cost, the idea is the life cycle cost. And that's that clear understanding that knowing what something costs just in going to the store and buying it or having somebody buy some material and then put it up, that's only part of the story.

So in that example of the first cost of the, was it vinyls siding, being cheaper than say the wood siding or the veneer brick, well if we're thinking about it in combination of first cost plus the maintenance cost plus the replacement cost plus all the energy that gets used, and we have a sort of timeline understanding that is longer than say five or 10 years.

If maybe our timeline is more like 40 or 50 years, if the ownership of the building makes sense to think about it in that way, well then that first cost starts becoming less and less important. It hard to make a decision just based on first cost if we have that longer timeline consideration. So in that scenario we start imagining the first cost of the vinyl siding, well it was much much lower, but maybe we had to replace it three times.

So now we're adding a bunch of cost to that. You know maybe we have either better or worse energy use by adding a little bit of insulation or having certain amounts of water get repelled and not coming in and having to deal with it in our building. So what are the things that are going to be better or worse from a maintenance standpoint?

What are the things that are going to be better or worse from a replacement standpoint? Where is the energy going? What are all the different pieces that we have to add together in order to understand what a life cycle cost number is, so that when we're comparing that vinyl siding to the wood siding, we're comparing more realistically and it may well be that the cheaper vinyls siding, if we look at it over a span of 30 or 40 years may actually be more expensive.

It may make more sense to spend more money up front to have a better quality material that will then last a longer time as long as we maintain it right, as long as we build in the cost of maintenance in that comparison. And we can then understand is this the right choice. Now if our timeline was four years or six years, it'd be very hard to beat the vinyl siding from a purely cost standpoint.

That first cost would be so much cheaper, it would be very unlikely that you'd be able to make a case for the wood siding other than maybe beauty or authenticity or something like that. But from a cost standpoint, it would be very hard on a shorter timeline to make the case for the wood or veneer brick. But in that longer timeline, it might make a lot of sense. So the idea of the fist cost, it's a very useful number, but only so useful, it doesn't really tell us the full story.

The life cycle is trying to tell us a real full story, but the only way that is can do it is by we have to first of all bring all those numbers to the table, so we have to start thinking not just how much does something cost, how much does it cost to install it, but how much does it cost to replace it, how much does it cost to keep it maintained, how much does it cost to run it over a span of time, especially if it's something like a light bulb or a HVAC system or something like that.

That energy use over time might be the big number compared to the first cost of the install. So what is the total there, and then we have to understand that total in a context of time, and so time in this way is actually a design consideration. There is nobody who is going to say, yes this is a 20 year life span, or this is a five year life span, or this is a 100 year life span.

This is what the designer is bringing to the table, you are thinking well in this kind of project delivery, in this kind of situation with a client, in this sort of place, market, then we think that the timeline discussion should be 30 years. Given that, this is how we've done our life cycle analysis, and that's what we've added up. If we have to replace that vinyl siding every 10 years, then we get three times that we've put that in and we've balanced that against the material that we're comparing it to.

If we're talking about a five year time consideration, well then obviously the vinyl siding never gets replaced, it's just that single cost plus a few of those other maintenance issues and things. So this is a way of making sure that we've got a clear understanding of comparisons and real apples to apples comparisons, but thinking about it also from a design standpoint about nailing down that timeline in order to be able to truly understand what we're really comparing.

Different owners, different owner situations will probably have quite different feelings about these things. Developers probably don't really care that much about life cycle costs. They kind of want to get something built and sell it off and then leave. People who have long term plans about something, high schools, universities, town libraries, the intent when you build a high school or a library or your university building, the intent is to have that be there for a pretty long time.

You're not really building with a five year or 10 year timeline on it, you're thinking this sort of much longer span of ownership. Right, so in those situations that life cycle cost is going to be by far the most important way to start comparing these things.

So when we are trying to make these decisions, the key understanding about what's making it in to that final set of plans, is going to be a cost understanding. We're going to have to like, does it make sense from an economic standpoint to use whatever it is we're talking about and so we're trying to do that comparison, which is the best one for the situation. We're almost always going to be thinking about this either as a first cost because that's the timeline consideration, or more likely as a life cycle cost because that's the real way that we get that full apples to apples comparisons.

It's hard to know exactly what kind of question it will be, but you will absolutely get questions on first cost versus life cycle cost. It's a sort of fundamental understanding of making those decisions, of finding all the opportunities, well what do we need to weed out the reasons that we're not gonna use something and find the things that we're going to use.

Well cost is going to be one of them and the only way to really think about that is in this apples to apples way through the life cycle costs.

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From the course:
ARE 5.0 Project Planning & Design Exam Prep

Duration: 30h 57m

Author: Mike Newman