It’s a simple concept. Capital expenditures, on average, comprise only 10% of total building costs while lifecycle operating costs make up the remaining 90%. Therefore, it’s more sensible – if not more financially advantageous – to balance fiscal decisions by taking both aspects into account.
CAPEX and OPEX are not mutually exclusive. They each impact the balance sheet and total cost of ownership (TCO). Problem is, certain elements of building lifecycle costs – taxes, incentives, energy, maintenance and replacement – are very difficult to predict or analyze upfront (pre-build) with any high degree of confidence or accuracy. At least, not until now.
Total cost of ownership calculations include:
Initial Construction Costs
Long-Term Energy / Operating Costs
Maintenance / Replacement Costs
Rebates, Deductions & Incentives
Project Financing / Cost of Capital
Inflation / Energy Price Escalation
Equipment Life / Cost Segregation
CASE STUDY #1:
NATIONAL HARDWARE STORE CHAIN
By determining construction & operating cost savings for a 400,000 ft2 distribution center roof-retrofit solution that featured LED and daylighting systems, SmartView revealed:
$1,080,000 tax deductions
$50,000 energy rebate
CASE STUDY #2:
REGIONAL DISCOUNT STORE CHAIN
When considering a 480,000 ft2 distribution center expansion, SmartView analyzed the operating/maintenance cost savings and energy tax rebates/incentives resulting from specified wall/insulation systems, LED controls, and roof daylighting. Cost segregation of depreciated assets was included in the final SmartView calculation:
(Cost Segregation Year 1 Cash)
(Over 1st five years)
(additional cash still pending)
What these case studies emphasize is that initial construction costs (CAPEX) typically pale in comparison – and are greatly offset by – lifecycle operating cost savings (OPEX).
The future of construction planning and decision-making is here now, and at its core is detailed TCO data.
“Today, TCO analysis supports acquisition and planning decisions for a wide range of assets. These include especially those that bring large maintenance and operating costs across a long ownership life. Total cost of ownership is therefore center stage when leaders face purchase or planning decisions…”Building the Business Case Analysis by Solution Matrix Ltd.
The ultimate advantage in balancing CAPEX realities with OPEX savings is uncovering the hidden (less obvious) cost savings, which can be easily overlooked. Of course, having more information is always preferable for the most astute and perceptive business executives.