FREE ELECTRONIC LIBRARY - Dissertations, online materials

Pages:   || 2 | 3 |

«In an attempt to focus clients’ minds on the importance of considering the construction and maintenance costs of a commercial office building (both ...»

-- [ Page 1 ] --




Will Hughes, Debbie Ancell, Stephen Gruneberg and Luke Hirst

School of Construction Management and Engineering, University of Reading, PO Box 219, Reading,


In an attempt to focus clients’ minds on the importance of considering the

construction and maintenance costs of a commercial office building (both as a factor in staff productivity and as a fraction of lifetime staff costs) there is an often-quoted ratio of costs of 1:5:200, where for every one pound spent on construction cost, five are spent on maintenance and building operating costs and 200 on staffing and business operating costs. This seems to stem from a paper published by the Royal Academy of Engineering, in which no data is given and no derivation or defence of the ratio appears. The accompanying belief that higher quality design and construction increases staff productivity, and simultaneously reduces maintenance costs, how ever laudable, appears unsupported by research, and carries all the hallmarks of an “urban myth”. In tracking down data about real buildings, a more realistic ratio appears to depend on a huge variety of variables, as well as the definition of the number of “lifetime” years. The ill-defined origins of the original ratio (1:5:200) describing these variables have made replication impossible.

However, by using published sources of data, we have found that for three office buildings, a more realistic ratio is 1:0.4:12. As there is nothing in the public domain about what comprised the original research that gave rise to 1:5:200, it is not possible to make a true comparison between these new calculations and the originals. Clients and construction professionals stand to be misled because the popularity and widespread use of the wrong ratio appears to be mis-informing important investment and policy decisions.

Keywords: occupancy costs, staffing costs, maintenance costs, offices, urban myths.


The often-quoted ratio of 1:5:200 (1 = construction cost; 5 = maintenance and building operating costs; 200 = business operating costs) for commercial office buildings over their lifetime appears to have originated from a Royal Academy of Engineering paper, “The Long Term Cost of Owning and Using Buildings” by Evans, Haryott, Haste and Jones (1998: p5). But this ratio is not supported by any research, information, data or analysis in the original article, which, in fact, merely mentions this ratio in passing, in an introductory comment, as having been derived elsewhere.

This would not be particularly remarkable, but for the way that this idea has taken hold of a multitude of writers and analysts in our field. The ratio has not only become accepted by a large number of people, it also seems to have been adopted for informing major investment decisions. It frequently turns up with acknowledgement to Evans et al. (e.g. Pearce, 2003: p52) but occasionally is used unacknowledged (e.g.

CABE, 2002: p19). The ratio appears to have been simply absorbed into

1Hughes, Ancell, Hirst and Gruneberg

conventional wisdom, without challenge as to its origins or accuracy. However, six years after the ratio was first published, there is still no evidence of data to support it.

Sir Peter Gershon (2002), in a speech at a Defence Estates Conference, referred to this ratio as follows: “the UK's Royal Academy of Engineering has analysed that the typical costs of owning a building are in the ratio of 1 part construction costs to 5 parts maintenance costs to 200 building operating costs”. Similarly, Lord Sainsbury (2002) is under the impression that the Royal Academy of Engineering “found that” this ratio was typical. But the paper by Evans et al. clearly contains no analysis.

Bamfield (2002), in writing about the importance of whole life costs, refers to the “recent and widely reported research into office accommodation” curiously adding that the relationships work in reverse, and uses the 1:5:200 ratio to claim that a £100k reduction in capital cost increases a business’s operating costs by £20m.

The ratio is recommended for use at the design stage of a building when the life cycle costs (LCC) of the building are considered (Pearce, 2003: p52). What is not clear, though, is whether LCCs become the future determinants of the “5” for maintenance costs or if the “5” is an elastic/balancing figure determined by the “200”( i.e. costs of operating the business determine what is available for building maintenance) or if “5” becomes a budget figure unrelated to the projected LCC figure.

We wrote to the authors of the Evans et al. paper and they told us that they no longer had the data, recalling that it had been provided by a major contractor from mainly US sources. Although the original data is no longer available, Ray Evans, one of the

authors, has emailed his recall of the definitions of the terms used:

“the construction cost was the total construction cost, including land acquisition and professional fees, but excluding finance costs; maintenance costs included energy costs general maintenance repairs and decoration/refurbishment; operating costs included staff, equipment, consumables and all other business overheads. The building life was I think, 25 years.” He also said that he thought that Chase Manhattan Bank had developed a similar ratio.

This is confusing as in their paper Evans et al. used the phrase “operating costs” twice, in both the second (maintenance and building operating costs) and the third categories (business operating costs), whereas Evans’ clarification uses the phrase in only the third category. It is also very strange to exclude the cost of finance from the first category, as this has a huge impact on the price paid for a building. Since there was no historic data available from the authors on the original ratio, it was clearly important to establish definitions of the terms used in the original ratio, i.e.

construction cost, maintenance and building operating costs, and business operating costs.

If the ratio of 1:5:200 was correct, using the definitions of each term given by Evans et al., then some very strange numbers emerge about the costs of staff housed in office buildings. For example, a building for 308 office staff was built for an initial capital cost (excluding finance) of approximately £3.5m (Brooks and Quirk 1999). The ratio would indicate that over 25 years, the business would spend 200 times the initial cost of the building on occupying and using the building, i.e. £700m, which is £28m per annum, or £91k per office worker per year. Another office building, with a total capital cost (excluding finance) of £24m houses 1,600 occupants. If the ratio is

2 Costs of owning and occupying office buildings

correct, their costs would be £120k, per person, per year. These figures indicate that the costs of occupation may have been over-estimated in the original ratio.

Turning to the maintenance part of the ratio, indicating that over its 25 year life we can expect to pay five times the capital cost of the building in maintenance costs, it is interesting to note that gross construction activity for the whole sector indicates that the UK spends less on repairs and maintenance than it does on new buildings (Department of Trade and Industry 2003), not five times as much. The DTI’s construction statistics are based on contractors’ orders, so, like Evans et al. also do not take account of the cost of finance, and therefore one would expect an approximate match.

These approximations lead us to question how this ratio of 1:5:200 came about, and whether there is a more accurate ratio available, as the ratio seems to be wildly exaggerated.


A simple internet search on UK sites reveals many uses for the ratio – ranging from industry (e.g. Building Design Partnership 2004) and government (e.g. Gershon 2002, Ministry of Defence 2002, etc.) through to various authoritative publications (e.g. a Guide to Risk Management from Collaborating for the Built Environment (2003), and the Client Guide for Arts Capital Programme Projects (CABE 2002: p19). Although not an accurate reading of the frequency with which these statistics are used, it shows how a simple “rule of thumb” has become “the norm”, apparently without question. It is discussed by various government agencies and taken as authoritative and appears to be used in PFI project thinking. The spread of the ratio is like a game of “Chinese whispers”, and few who quote the ratio pause to calculate what it really means.

Hutcheson (1994) wrote about the need for building managers to develop a maintenance programme which optimized the building operating costs and the need for “tenants to occupy buildings on the basis of the cost-effectiveness of facilities, location, fit-out, and aesthetics balanced with rent”. This implies that any fixity between the three parts of the ratio can be realigned depending on the tenant and his or her needs and building operating costs could become a “balancing” item and flexed with available funding. Riley and Cotgrave (2004) stress that lifecycle, refurbishment and maintenance costs are important with planned maintenance reducing the need for reactive maintenance. They note that refurbishment can be triggered by poor maintenance – i.e. not tied to any construction cost or business operating cost.

Saxon (2002) picks up the idea of the ratio, and asserts that Evans et al. assumed a 20 year building lifespan, whereas Evans’ e-mail to us claims it is based on 25.

Moreover, he asserts that in Net Present Value terms, the ratio is a far less dramatic 1:1.5:60, but, like Evans et al., he shows no data to support this calculation.

Moreover, the ratio is now applied to all building types, not mentioning offices, but in the same paragraph, mentioning the significance of this ratio for hospitals, schools and laboratories. In a later paper, Saxon (2003: p2) returns to the 1:5:200 ratio and stresses the importance of “improving value by lowering costs” and concentrating on best serving the customer (i.e. tenant) and considering “benefit definition”. He further adds to the 1:5:200 ratio by including a fourth term, design, at 0.1 of the original construction cost and then a fifth term, the performance for the occupying activity, which he pitches in a range from 250 to 2000. This extended ratio means that over the life of the facility the benefit generated from design runs from 1:2500 upwards. This

3Hughes, Ancell, Hirst and Gruneberg

is done to support the view that by putting emphasis on design there is greater performance benefit from the occupying organisation later; good design creates buildings which have no net cost! Again, there is no data to support these statistics and by taking the 0.1 out of the “1” the “1” is reduced to 0.9 and thus the original ratio is altered (or was the 0.1 supposed to have been excluded from the 1? It is impossible to say).

The inflated claims that follow in the wake of the simple ratio are in stark contrast to the wider literature. For example, Seeley (1996), in his text on cost modelling, stresses that no two projects are identical and that using the historic data from one can be dangerous as a predictor of another. This would undermine the case for a fixed ratio of construction to building maintenance to business operating costs. Skitmore and Marston (1999) examine all the inputs of cost modelling, and the various available models show that, depending on which is used, the data and information output will vary. This is endorsed by the BMI (2003: p5) noting that when considering the occupancy costs one should consider the building size, shape and layout, specification, intensity of use, location and orientation and noting that “the actual cost and ratio of the costs between these elements can vary from building to building…” It is not as if this were a new idea. Stone (1980) deserves considerable comment. He provides alternative ratios as well as a guide to initial cost and building operating costs. He suggests that “often the running costs of a building are three times as great as the first costs” (p xii), conflicting with the notion of 1:5 in the ratio under review.

Stone also states that “Energy costs are two or three times as great as maintenance costs and equivalent to a substantial proportion of structural costs.” (p xiv) He also stresses “…the cost of construction is only the first cost and far less important than the subsequent costs associated with running the building and operating it.” (p 3) He also considers such issues as rates of interest which could affect a ratio and the sensitivity of interest rates on the life of the building, as well as inflation and other resource costs. Short lifetimes reduce a building’s value without reducing costs – simply because there is no way of economically constructing a building for a short life.

Stone also sets out a cost table (p15) which shows that the initial cost of offices is 53%, with maintenance at 14% and fuel and attendance for heating and lighting at 33%, at a net discount rate of 5%. “The proportions of running costs tends to be lower the higher the initial cost of the building and the fewer the hours per year for which the building is used” (p15). Stone also examines the cost of multi-storey buildings, the costs of which can be affected by the country in which the building is constructed.

Running costs too, increase with storey numbers because of the additional services needed to access the upper levels.

Wong (2000) examines a method for assessing the value of commercial property in order to be able to cost and time the refurbishment most economically. This, too, could affect a ratio: higher quality in the construction process (but not necessarily at higher cost) should reduce the costs of maintenance.

Pages:   || 2 | 3 |

Similar works:

«READING BOROUGH COUNCIL WASTE MINIMISATION STRATEGY 2015 – 2020. “The Council is committed to reduce the growth of waste by promoting waste minimisation through re-use, recycling and composting and to minimise disposal.” 1. Introduction It has never been more important to encourage residents and businesses to minimise the household and commercial waste that they produce. The Council has a duty to provide a framework within which we encourage a reduction in the amount of waste produced,...»

«Missouri Open 2015 An Attempt at a Critique of all Real Knowledge Questions by Will Alston, Itamar Naveh-Benjamin, Shan Kothari, Rohith Nagari, and Ewan Macaulay Packet 10 TOSSUPS 1. In one model, this property can be represented by the proximity of two points in 3-dimensional Hansen space. In drug metabolism, glucuronic acid is added to xenobiotic substrates to increase this property. The ratio of values of this quantity in octanol and water gives the (*) partition coefficient. The equilibrium...»

«European Historical Economics Society EHES WORKING PAPERS IN ECONOMIC HISTORY | NO. 45 The Location of the UK Cotton Textiles Industry in 1838: a Quantitative Analysis Nicholas Crafts University of Warwick Nikolaus Wolf Humboldt University Berlin SEPTEMBER 2013 EHES Working Paper | No. 45 | September 2013 The Location of the UK Cotton Textiles Industry in 1838: a Quantitative Analysis Nicholas Crafts University of Warwick Nikolaus Wolf Humboldt University Berlin Abstract We examine the...»

«Volume 5 | Issue 04 | January 24, 2014 Review of Wyden-Coats tax reform plan while Congress in recess Congress is on recess this week, returning on Monday, January 27. This week’s Legislate provides an overview of S. 727 — the Bipartisan Tax Fairness and Simplification Act of 2011 — introduced by Senator Ron Wyden (D-OR). The bill proposed significant changes to tax rules affecting employee benefits and retirement saving, particularly in the area of fringe benefits. It remains to be seen...»

«THE GREAT STORM OF 1987: 20-YEAR RETROSPECTIVE RMS Special Report EXECUTIVE SUMMARY The Great Storm of October 15–16, 1987 hit northern France and southern England with unexpected ferocity. Poorly forecast, unusually strong, and occurring early in the winter windstorm season, this storm — known in the insurance industry as “87J” — has been ascribed negative consequences beyond its direct effects, including severe loss amplification, and according to one theory, the precipitation of a...»

«EQUITY & DEVELOPMENT World Development Report 2006 Background Papers Bridging the north south divide in Ghana Draft Summary The intractability of regional inequality in Ghana Regional inequality is significant: average per capita incomes are 2-4 times lower than elsewhere in the country, and, while inter-regional income inequality accounts for only about 1/5 of total inequality in Ghana, it increased during the 1990s, and it could be anticipated that this trend will have continued into the new...»

«The Robert Schuman Centre for Advanced Studies European University Institute, Florence Jean Monnet Center for International and Regional Economic Law & Justice NYU School of Law Christian Joerges, Yves Mény, J. H. H. Weiler (eds) Jean Monnet Working Paper No. 6/01 Mountain or Molehill ?: A Critical Appraisal of the Commission White Paper on Governance With contributions by F. W. Scharpf • M. Telò • P. Magnette • N. Walker • C. Möllers • E. O. Eriksen A. Héritier • P. Schmitter...»

«Paper to be presented at the DRUID Summer Conference 2003 on CREATING, SHARING AND TRANSFERRING KNOWLEDGE. The role of Geography, Institutions and Organizations. Copenhagen June 12-14, 2003 Theme A-E Theme E: Networks, Projects and New Organizational forms as Vehicles for Knowledge Building and Transfer Project baronies: Growth and governance in the project-based firm David M Gann and Ammon J Salter* Innovation Studies Centre, The Business School, Imperial College London 12 Princess Gate,...»

«1. School and home in Sardinia To Francesco Gramsci [Santulussurgiu, June 1908]1 Dearest father, If you can do so in time, do not send the money order by telegraph but send the money by post, and send it on Tuesday; if not, it doesn’t matter. However the Director at Oristano has written again to say that we have to pay 120 lire, not just 100. Professor Stara has told us to pay now, so as not to get into an argument before the examination, out of some huffiness, and then try to claim the money...»

«TRENDS AND ISSUES OCTOBER 2013 ENGAGING EARLY-CAREER WORKERS IN THEIR FINANCIAL WELL-BEING Paul J. Yakoboski, Ph.D. Senior Economist TIAA-CREF Institute EXECUTIVE SUMMARY Generation Y, also known as the Millennial Generation, is the largest generation in U.S. history. Financial decisionmaking by Gen Y and the state of their personal finances have significant implications for the individuals themselves and for the U.S. economy overall. It’s therefore important to understand Gen Y’s personal...»

«The Newer Incoherence: Competition, Social Science, and Balancing in Campaign Finance Law After Randall v. Sorrell RICHARD L. HASEN * This Article considers the Supreme Court’s recent decision in Randall v. Sorrell striking down Vermont’s campaign expenditure and contribution limits. The Supreme Court’s campaign finance jurisprudence before Randall was marked by swings in doctrine and general incoherence. At first glance, the plurality opinion in Randall appears to add a level of...»

«The relationship between strategic leadership and strategic alignment in high-performing companies in South Africa by LORRAINE WENDY LEAR submitted in accordance with the requirements for the degree of DOCTOR OF BUSINESS LEADERSHIP at the UNIVERSITY OF SOUTH AFRICA GRADUATE SCHOOL OF BUSINESS LEADERSHIP PROMOTER PROFESSOR ERNST NEULAND FEBRUARY 2012 i Declarations Student number: 638-969-4 I declare that ”THE RELATIONSHIP BETWEEN STRATEGIC LEADERSHIP AND STRATEGIC ALIGNMENT IN HIGH-PERFORMING...»

<<  HOME   |    CONTACTS
2016 www.dissertation.xlibx.info - Dissertations, online materials

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.