importance of building economics

BUILDING ECONOMICS ASSIGNMENT

"We no longer build buildings like we use to, nor do we pay for them in the same way. Buildings today are...life support systems, communication terminals, data manufacturing centers, and much more. They are incredibly expensive tools that must be constantly adjusted to function efficiently. The economics of building has become as complex as its design." (Wilson) Building Economics is microeconomic (how individual actors in economic realm make economic plans and decisions) analysis which studies the economic implications of architectural design decisions and impacts of these decisions. It includes:     

Engineering economics Real Estate Economics Urban Economics Energy Economics Environmental economics

It includes Construction Estimate, Construction Management, Project Management, Construction Financing, Real Estate financing etc. Architectural design decisions can be expensive. Therefore more and more resources should be allocated to the careful analysis, evaluation and comparison of design schemes at early design stages. Buildings nowadays cost almost quarter to one half of monthly income of a person. That is a large amount to be spent as initial cost. The cost of operation and maintenance is much more than the initial cost. And not

forgetting the labor cost, which is rising high day by day. All these things which disturb a client are in fact under architect’s own control. Clients expect workable economic solutions to these problems. Architect can analyze these things in the critical design time and workout solutions. Thus they can also judge cost implications of various design alternatives. All buildings are investments, and that economic assessment is a twoedged exercise: the process of evaluating the return, combined with the process of estimating the cost -- how much the client will pay. Design engineers in the past have applied simple economics to their designs, with the interests of their clients in mind. Nowadays, designers have become - under environmental, social and other pressures - more sophisticated in their application of economics. Indeed, "socioeconomics" has become increasingly important to more engineering professionals. In the same way, whereas buildings used to be looked upon as "inanimate", it has recently become clear that the environment within buildings is important not only for the welfare of the people using them but also for their productivity. In other words, another economic dimension has been imposed on the design, construction and operation of buildings, which is very important. Technical solutions need to be suitable for use in a dynamic economic environment. One reason it is dynamic is that government is changing the regulations all the time. Also, the tax system is changing, market factors are changing. The problem here is to be able to measure benefits and costs as functions of the design solution. The key problem is measurement. But in the end, even if there is a benefit, the loop has to be closed by asking the question - who will pay? Someone has to

pay. The assumption, these days, that an architect or engineer is in possession of everything he ought to know is being challenged. Clients are also challenging the correctness of technical information. But without help from the design people, technical information is hard to come by for the small organization. To take an example, life-cycle cost analysis is a great idea and a powerful tool for providing a sensible basis for broader decision making. Most applications of it are simply transpositions of the procedure used in the manufacturing sector. But there is still not enough data to apply it intelligently to construction.

Another factor is that in government research policy, the construction industry tends to be overlooked in the economy after manufacturing and resource industries such as agriculture. This is, in part, due to the industry itself, to the large number of small participating companies

which cannot afford to do research themselves or to go looking for new technical information. At the level of the individual building project, it is easy to understand why the client is unwilling to pay for data that have not yet been collected. Two things appear to be missing, therefore. One is the data, and the other is the development of methodology for applying it. Who should by paying for these? Perhaps the construction industry has never made up its mind to sell a "product", although it may have done this to some extent in the earlier, master builder era. The result has been that job costing has become the main concern of the industry, even in the largest companies. These companies have no capacity whatsoever for research. Consequently, owners respond to what the contractor is offering. Owners tend to look on initial capital costs as large items and fail to recognize that small increases in these costs now may lead to substantial savings later on. However, inefficiencies of this kind in the system are gradually being identified. Economics is often looked upon negatively, reflecting the frustrations that many people feel when the financial markets and the economy are not behaving as they would have them behave. On the other hand, economics offers a powerful tool for bringing order and understanding to business and is in fact being used very effectively these days in housing and especially from a "micro" standpoint where a lot is being done to explain and to predict the phenomena found in this market. In the area of design, for example, economics offers us a tool to evaluate new technologies. They can be assessed and their economic impact predicted. We can build micro and macro models to predict the market

penetration that new technologies may be able to capture. It allows us to address scale problems -- how much investment is it economically efficient to put into different kinds of features. It allows us to address trade-offs between different kinds of building features. We can assemble packages for energy conservation to achieve the largest set of benefits for a given budget. We can rank investment projects and levels in an order of priority. We are able to address safety issues, even from the standpoint of looking at how much it is economical to spend to prevent a particular hazard from occurring, or we can identify a level, or objective, for minimizing - say - earthquake damage and the combination of safety measures which will provide the most efficient package for addressing such a situation. Economics gives us tools for addressing the problems of building productivity, which is currently in quite a depressed state, for identifying the areas in which these problems lie, and for developing ways in which improvements can be made. To what extent can the architect influence the building process? How well does the architect sell his product? Perhaps the main problem is the limitations on fees. Buildings must also be designed and built as fast as possible, whether by the engineer or by the architect. The exercise of imagination on the part of these professionals plays no part in the fee structure. Moreover, these professionals do not receive enough feedback and thus continue to make the same mistakes. The economic analysis of projects goes back at least to the 1930's. Since that time, economic analysis has been integrated into the decision making process. Building owners use economic analysis to determine

the most economically efficient or cost-effective choice among building alternatives. From one perspective of the client, time is money. Architect can in fact speed up the construction process. Building economics is also very important if we study the role of building industry in national economy.

THE ECONOMIC ANALYSIS PROCESS