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Cost analysis error? Exploring issues relating to whole-life cost estimation in sustainable housing

Brian Sloan (School of Engineering and the Built Environment, Edinburgh Napier University, Edinburgh, Scotland, United Kingdom)
Olubukola Tokede (School of Engineering and the Built Environment, Edinburgh Napier University, Edinburgh, Scotland, UK)
Sam Wamuziri (Business School, Centre for Management Research , Wrexham, Wales, UK)
Andrew Brown (School of Engineering and the Built Environment, Edinburgh Napier University, Edinburgh, Scotland, United Kingdom)

Journal of Financial Management of Property and Construction

ISSN: 1366-4387

Article publication date: 7 April 2014

2232

Abstract

Purpose

The main purpose of the study is to promote consideration of the issues and approaches available for costing sustainable buildings with a view to minimising cost overruns, occasioned by conservative whole-life cost estimates. The paper primarily looks at the impact of adopting continuity in whole-life cost models for zero carbon houses.

Design/methodology/approach

The study embraces a mathematically based risk procedure based on the binomial theorem for analysing the cost implication of the Lighthouse zero-carbon house project. A practical application of the continuous whole-life cost model is developed and results are compared with existing whole-life cost techniques using finite element methods and Monte Carlo analysis.

Findings

With standard whole-life costing, discounted present-value analysis tends to underestimate the cost of a project. Adopting continuity in whole-life cost models presents a clearer picture and profile of the economic realities and decision-choices confronting clients and policy-makers. It also expands the informative scope on the costs of zero-carbon housing projects.

Research limitations/implications

A primary limitation in this work is its focus on just one property type as the unit of analysis. This research is also limited in its consideration of initial and running cost categories only. The capital cost figures for the Lighthouse are indicative rather than definitive.

Practical implications

The continuous whole-life cost technique is a novel and innovative approach in financial appraisal […] Benefits of an improved costing framework will be far-reaching in establishing effective policies aimed at client acceptance and optimally performing supply chain networks.

Originality/value

The continuous whole-life costing pioneers an experimental departure from the stereo-typical discounting mechanism in standard whole-life costing procedures.

Keywords

Acknowledgements

The authors are grateful for the financial assistance from the Institute of Sustainable Construction of Edinburgh Napier University in meeting the fee difference between the international and home fee for the lead author on the Research degree Programme. The authors would also like to express their thanks to Temitope Ajetunmobi, of KAPPA Training and Consultancy Services for constructive comments and advice during the research. Finally, the authors wish to acknowledge the joint efforts of the anonymous reviewers, referee and editorial team in assisting the scope and quality of the paper.

Citation

Sloan, B., Tokede, O., Wamuziri, S. and Brown, A. (2014), "Cost analysis error? Exploring issues relating to whole-life cost estimation in sustainable housing", Journal of Financial Management of Property and Construction, Vol. 19 No. 1, pp. 4-23. https://doi.org/10.1108/JFMPC-02-2013-0003

Publisher

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Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

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