02 Buildings Economics

LECTURE
ONE
FALL 2010
LECTURE ONE
WHY!!!
During the energy crisis and infla5onary cycles of the 1970s and 1980s,
Building industry was faced with increasing ini5al construc5on costs and
ongoing opera5onal and maintenance expenses.
As a result, facility planners and designers began to use economic

analysis to evaluate alterna5ve construc6on materials, assemblies, and
building services with a goal to lower costs.
Today, building owners wishing to reduce expenses or increase profits
u5lize economic analysis to improve their decision making during the
course of planning, designing, and construc5ng a building.
Moreover, the global building industry demands the use of building
economic analysis to determine the most economically efficient or cost-‐
effec5ve choice among building alterna5ves.
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LECTURE ONE
Course Goals
Study of factors affec5ng cost of building
including:
1. The building market,
2. Construc5on cost,
3. Es5mates and cost control,
4. Time value of money
5. Building life-‐cycle cost,
6. Measuring the worth of investments,
7. Deprecia5on and tax considera5on of cash-‐flows.
LECTURE ONE
Figure 1 : Physical and Economic Components of an Engineering System
Physical Engineers produce products and

Environment services depending on physical laws
Economics Assessing The worth of these

Environment Products/ Services In economic Terms

LECTURE ONE
Physical vs. Economics
system output(s)
Physical (efficiency ) = -‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐
system input(s)
Economics (efficiency ) = -‐system output(s)

-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐
system input(s)
system worth
Economics (efficiency ) = -‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐
system cost

LECTURE ONE

THE PHYSICAL ENGINEERING PROCESS
• Determina6on of Objec6ves
This step involves finding out what people need and want that can be
supplied by engineering. People's wants may arise from logical considera5ons,
emo5onal drives, or a combina5on of the two.
• Iden6fica6on of Strategic Factors

The factors that stand in the way of aaaining objec5ves are known as
limi5ng factors. Once the limi5ng factors have been iden5fied, they are
examined to locate strategic factors -‐-‐ those factors which can be altered to
remove limita5ons restric5ng the success of an undertaking. A woman who
wants to empty the water from her swimming pool might be faced with the
limi5ng factor that she only has a bucket to do the job with, and this would
require far greater 5me and physical exer5on than she has at her disposal. A
strategic factor developed in response to this limita5on would be the
procurement of some sort of pumping device which could do the job much
more quickly, with almost no physical effort on the part of the woman.
LECTURE ONE
Physical v s.
THE PHYSICAL ENGINEERING PROCESS
Economics
• Determina6on of means (engineering proposals)
This step involves discovering what means exist to alter strategic factors in order to
overcome limi5ng factors. In the previous example, one means was to buy (or rent) a
pump. Of course, if the woman had a garden hose, she might have been able to siphon
the water out of the pump. In other engineering applica5ons, it may be necessary to
fabricate the means to solve problems from scratch.
• Evalua6on of Engineering Proposals

It is usually possible to accomplish the same result with a variety of means. Once
these means have been described fully, in the form of project proposals, economic
analysis can be employed to determine which among them, if any, is the best means for
solving the problem at hand.
• Assistance in Decision Making

It is commonplace for the final decision-‐making responsibility to fall on the head(s)
of someone other than the engineer(s). The person(s) so charged, however, may not be
sufficiently knowledgeable about the technical aspects of a proposal to determine its
relevant worth compared to other means. The engineer can help to bridge this gap.
LECTURE ONE

ENGINEERING ECONOMIC STUDIES
The four key steps in planning an economic study are :
• Crea6ve Step : People with vision and ini5a5ve adopt the premise that beaer
opportuni5es exist than are known to them. This leads to research, explora5on,
and inves5ga5on of poten5al opportuni5es.
• Defini6on Step : System alterna5ves are synthesized with economic requirements

and physical requirements, and enumerated with respect to inputs/outputs.
• Conversion Step : The aaributes of system alterna5ves are converted to a common
measure so that systems can be compared.
Future cash flows are assigned to each alterna5ve, consis5ng of the 5me-‐value
of money.

LECTURE ONE

ENGINEERING ECONOMIC STUDIES
The four key steps in planning an economic study are :
• Decision Step : Qualita5ve and quan5ta5ve inputs and outputs to/from each
system form the basis for system comparison and decision making.
• Decisions among system alterna5ves should be made on the basis of their
differences.
• Examples :
Infrastructure expenditure decision
Replace versus repair decisions
Selec6on of inspec6on method
Selec6on of a replacement for an equipment

LECTURE ONE
FUNDAMENTAL ENGINEERING
ECONOMIC CONCEPTS
It deals with the concepts and techniques of

analysis useful in evalua5ng the worth of
systems, products, and services in rela5on to
their costs

LECTURE ONE
Value Engineering

LECTURE ONE
Case Study
Alameda County Santa Rita Jail
A total saving in year of opera5on worth

410000$

LECTURE ONE
Course Assessments
• Course Grade 100%
• Finals
• Course Work
– Readings 30%
– Research 40%
– Aaendance 15%
– Par5cipa5on 15%

LECTURE ONE
Building Economics
Research 1
Case Study on a Building type that Engineering
Economics played a great role in determining
the design decision making
‫�د�ر�ا�س�ة �م�ث�ا�ل �ل�م�ب�ن�ي �أ�و �م�ش�ر�و�ع �س�ا�ع�د�ت �م�ن�ه�ج�ي�ة‬
‫�إ�ق�ت�ص�ا�د�ي�ا�ت �ا�ل�م�ب�ا�ن�ي �ف�ي �ت�ح�د�ي�د �أ�و�ل�و�ي�ا�ت‬
.‫�ا�ل�ق�ر�ا�ر�ا�ت �ا�ل�ت�ص�م�ي�م�ي�ة �ل�ه‬
Size: 4 A4 size pages ( Sok/ Hard Copies)
Deadline: Monday 24th of November, 12.00 am

LECTURE ONE
Reading 1
County of Alameda Santa Rita Jail Case Study, Smart Energy Strategies-‐ Integra5ng
Solar Electric Genera5on and Energy Efficiency, April 2002, PowerLight
Corpora5on, and CMS Viron Energy Services

PDF format caseStudy.pdf

LECTURE ONE
Course Online
Case Sensi6ve

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LECTURE

As a result, facility planners and designers began to use economic

11/10/2008 B - ‫�إ�ق�ت�ص�ا�د�ي�ا�ت �ا�ل�ب�ن�اء‬ 2

Figure 1 : Physical and Economic Components of an Engineering System

Physical Engineers produce products and

Economics Assessing The worth of these

11/10/2008 B - ‫�إ�ق�ت�ص�ا�د�ي�ا�ت �ا�ل�ب�ن�اء‬ 4

Physical vs. Economics

Economics (eﬃciency ) = -­‐system output(s)

11/10/2008 B - ‫�إ�ق�ت�ص�ا�د�ي�ا�ت �ا�ل�ب�ن�اء‬ 5

Physical vs. Economics

• Iden6ﬁca6on of Strategic Factors

• Evalua6on of Engineering Proposals

• Assistance in Decision Making

Physical vs. Economics

• Deﬁni6on Step : System alterna5ves are synthesized with economic requirements

11/10/2008 B - ‫�إ�ق�ت�ص�ا�د�ي�ا�ت �ا�ل�ب�ن�اء‬ 8

Physical vs. Economics

11/10/2008 B - ‫�إ�ق�ت�ص�ا�د�ي�ا�ت �ا�ل�ب�ن�اء‬ 9

It deals with the concepts and techniques of

11/10/2008 B - ‫�إ�ق�ت�ص�ا�د�ي�ا�ت �ا�ل�ب�ن�اء‬ 10

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A total saving in year of opera5on worth

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11/10/2008 B - ‫�إ�ق�ت�ص�ا�د�ي�ا�ت �ا�ل�ب�ن�اء‬ 14

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Economics (eﬃciency ) = -‐system output(s)