ASTM E1185-15(2020)e1

This international standard was developed in accordance with internationally recognized principles on standardization established in the Decision on Principles for the
Development of International Standards, Guides and Recommendations issued by the World Trade Organization Technical Barriers to Trade (TBT) Committee.
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Designation: E1185 − 15 (Reapproved 2020)
Standard Guide for
Selecting Economic Methods for Evaluating Investments in
Buildings and Building Systems
This standard is issued under the fixed designation E1185; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision. A number in parentheses indicates the year of last reapproval. A
superscript epsilon (´) indicates an editorial change since the last revision or reapproval.
ε NOTE—Adjunct title and stock number in 2.2 were updated editorially in April 2020.
1. Scope 2.2 ASTM Adjunct:
Discount Factor Tables - Adjunct to E917 Practice for
1.1 This guide identifies types of building design and
Measuring Life-Cycle Costs of Buildings and Building
building system decisions that require economic analysis and
Systems - Includes Excel and PDF Files
recommends ASTM practices, adjuncts, and computer pro-
gramsthatmaybeusedtoimplementtheappropriateeconomic
3. Terminology
methods for each decision type.
3.1 Definitions—For definitions of general terms related to
1.2 This international standard was developed in accor-
building construction used in this guide, refer to Terminology
dance with internationally recognized principles on standard-
E631; and for general terms related to building economics,
ization established in the Decision on Principles for the
refer to Terminology E833.
Development of International Standards, Guides and Recom-
mendations issued by the World Trade Organization Technical
4. Significance and Use
Barriers to Trade (TBT) Committee.
4.1 Standard practices for measuring the economic perfor-
2. Referenced Documents
mance of investments in buildings and building systems have
been published by ASTM. A computer program that produces
2.1 ASTM Standards:
economic measures consistent with these practices is avail-
E631 Terminology of Building Constructions
able. Discount Factor Tables has been published byASTM to
E833 Terminology of Building Economics
facilitate computing measures of performance for most of the
E917 Practice for Measuring Life-Cycle Costs of Buildings
practices.
and Building Systems
E964 Practice for Measuring Benefit-to-Cost and Savings-
4.2 This guide can be used to: (1) identify types of building
to-Investment Ratios for Buildings and Building Systems
designandsystemdecisionsthatrequireeconomicanalysis;(2)
E1057 Practice for Measuring Internal Rate of Return and
match the technically appropriate economic methods with the
Adjusted Internal Rate of Return for Investments in
decisions; and (3) locate the methods in the ASTM practices
Buildings and Building Systems
and adjuncts listed in Section 2.
E1074 Practice for Measuring Net Benefits and Net Savings
4.3 More than one method can be technically appropriate
for Investments in Buildings and Building Systems
for many building decisions. Therefore the choice in practice
E1121 Practice for Measuring Payback for Investments in
of which technically appropriate economic method to use for
Buildings and Building Systems
evaluating a particular building decision will often depend on
E1369 Guide for Selecting Techniques for Treating Uncer-
the perspective of the user. Some examples of factors that
tainty and Risk in the Economic Evaluation of Buildings
influence the user are: (1) ease of applying the methods, (2)
and Building Systems
level of familiarity of the user with the methods, (3) preference
of the user for different methods, and (4) presence of budget
This guide is under the jurisdiction of ASTM Committee E06 on Performance
limitations for the projects.
of Buildings and is the direct responsibility of Subcommittee E06.81 on Building
Economics.
Current edition approved April 1, 2020. Published May 2020. Originally
approved in 1987. Last previous edition approved in 2015 as E1185-15. DOI: Available from ASTM International Headquarters. Order Adjunct No.
10.1520/E1185-15R20E01. ADJE091717-EA. Original adjunct produced in 1984.Adjunct last revised in 2003.
2 4
For referenced ASTM standards, visit the ASTM website, www.astm.org, or The NIST Building Life-Cycle Cost (BLCC) Computer Program helps users
contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM calculate measures of worth for buildings and building components that are
Standards volume information, refer to the standard’s Document Summary page on consistent with ASTM standards. The program is downloadable from http://
the ASTM website. energy.gov/eere/femp/building-life-cycle-cost-programs.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States
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E1185 − 15 (2020)
4.4 Thisguideidentifiessomefeaturesandlimitationsofthe 5.3 Once the type of decision has been identified and Table
methods that might influence users’ choices under varying 1 has been consulted for the technically appropriate method,
conditions. there will be several methods from which to choose. Note that
while all of the methods that are marked as appropriate for a
5. How to Use This Guide
given decision will generally give answers that support the
same decision (with the exception of payback), there are likely
5.1 Table 1 indicates which standard practices (that is,
to be special considerations that make one or more methods
economic methods) are technically appropriate for the follow-
preferred over the others. Examine the special considerations
ing four types of building investment decisions: acceptance/
listed in Table 3 before making a final choice of methods.
rejection, design, size, and priority.
5.1.1 In the context of this guide, an acceptance/rejection
5.4 Examine the practice(s) that corresponds to the chosen
decision pertains to the cost effectiveness of an individual
method(s). In the selected practice(s), read the sections on
building or building system. This type of decision is made
significance and use, applications, and limitations. If the
independently of other project evaluations. It focuses on the
practice(s)stillseemsappropriate,followitsprocedures.Ifnot,
merits of a single choice rather than on determining the most
repeat the process using Tables 1 through 3 until an acceptable
cost-effective design or size.
practice has been found or it has been determined that none of
5.1.2 A design decision pertains to choices among compet-
the practices is suitable for the decision at hand.
ing designs for an individual building or building system,
5.5 Forassistanceincalculatingthemeasure(s)ofeconomic
where only one design can be chosen.
performance provided by the selected method(s), use the
5.1.3 A sizing decision pertains to choices among compet-
adjunct and the Building Life-Cycle Cost Computer Program
ing sizes or investment levels for an individual building or
(BLCC). The adjunct on Discount Factor Tables supports
building system, where only one size or level can be chosen.
manualcalculationsforallofthemethods.TheBLCCsupports
5.1.4 A ranking decision entails choosing one or more
computer calculations for all the methods except net benefits
projects from a group of cost-effective projects when the
where revenues are involved and payback.
available budget is not sufficient to fund them all.
5.1.5 Examine Table 1 to find which methods should be 6. Illustrative Cases
considered for a given decision. The ASTM designations are
6.1 Section 6 illustrates how to use this guide to choose the
given in parentheses under the method names.
appropriate practice for each of the four types of building
investment decisions listed in Table 2.
5.2 If there is any doubt as to which type of building
decision shown in Table 1 best applies, consult the examples in
6.2 Acceptance or Rejection Decisions:
Table 2. Table 2 lists examples for each of the four types of
6.2.1 If it is known (by recognition of the type of decision
decisions shown in Table 1. Find in Table 2 a building decision
or by having examined examples in Table 2) that the building
similar to the one being analyzed, and select the corresponding
decision to be made is one of accepting or rejecting an
decisiontypefromTable1.Section6containsillustrativecases
individual project, then a choice must be made from the five
of this process.
practices listed in Table 1. To illustrate how such a choice
might be made, an accept/reject building decision is evaluated
in terms of the special considerations in Table 3.
A
TABLE 1 Standard Practices For Making Building Decisions
6.2.2 An example of an accept/reject building decision is
Applicable Standards
whether to install a programmable time clock to control
Type of
BCR IRR NB
heating,ventilating,andairconditioning(HVAC)equipmentin
LCC PB
Building
(SIR) (AIRR) (NS)
(Practice (Practice
acommercialbuilding.Thetimeclockwouldreduceelectricity
Decision
(Practice (Practice (Practice
E917) E1121)
consumption by turning on only that part of the HVAC
E964) E1057) E1074)
BBBB C
equipment that is needed during hours when the building is not
Accep-
tance or
occupied.EachofthefivepracticesindicatedinTable1forthis
rejection
BD DB E type of decision is examined to see how useful it would be in
Design
BD DB E
assessing the cost effectiveness of the time clock.
Size
EBBEE
Priority or
6.2.3 The first method indicated in Table 1 is life-cycle cost
ranking
(LCC). Life-cycle costs are the sum over a given study period
A
All of the practices require discounting operations, but only Practice E917
of the costs of initial investment (less resale value),
explains discounting in detail.All of the methods can be applied using techniques
replacements, operations (including energy use), and mainte-
for treating uncertainty and risk. Practice E917 discusses briefly some of these
techniques. The other practices do not discuss them. Guide E1369 covers
nance and repair of an investment decision (expressed in
techniques for treating uncertainty in input variables to an economic analysis of a
present or annual value terms). Table 3 shows that the LCC
building investment project; it also recommends techniques for evaluating the risk
method provides a dollar measure. Thus if decision-makers
that a project will have a less favorable economic outcome than what is desired or
expected.
want a dollar measure of cost effectiveness, LCC would meet
B
Technically appropriate standard practice when total discounted benefits (sav-
that criterion. Table 3 also shows that the LCC method is most
ings) and costs are considered.
C
Note limitations in Table 3. useful where cash flows are primarily costs. If the principal
D
Technically appropriate standard practice when incremental discounted benefits
items affected by the time clock are increased capital costs for
(savings) and costs are considered.
E the time clock and reduced energy costs, then the LCC method
Not recommended.
would be appropriate.
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E1185 − 15 (2020)
TABLE 2 Examples of Building Investment Decisions
Type of Building Decision Examples
Acceptance or rejection A.1 Is a water heater insulation kit cost effective?
A.2 Are fire sprinklers cost effective?
A.3 Is a given control system cost effective for managing HVAC equipment?
A.4 Is a solar hot water system cost effective?
Design D.1 Is single, double, or triple glazing most cost effective?
D.2 What heating system is most cost effective?
D.3 Which orientation of a building is most cost effective?
D.4 Which code-approved plumbing system is most cost effective?
D.5 Which wall type (for example, masonry, wood frame, curtain wall) is most cost effective?
D.6 What floor finish (for example, carpeting, tile, wood) is most cost effective?
D.7 What kind of insulation (for example, cellulose, fiberglass, rigid foam) is most cost effective?
D.8 Is an item with low first costs more cost effective than a more durable substitute with higher first costs?
Size S.1 What is the economically efficient level (Rvalue) of insulation in the walls and above the ceiling of a
house?
S.2 How many square feet of collector area should be installed in a solar energy system?
S.3 What heat pump efficiency (for example, HSPF 1.75, 2.0, 2.25) is most cost effective?
S.4 What furnace efficiency (for example, AFUE 60 %, 75 %, 90 %) is most cost effective?
S.5 What air conditioner efficiency (for example, SEER 7.0, 9.0, 11.0) is most cost effective?
Priority or ranking P.1 What combination of investments in a given building (for example, new water heater, new floor tile,
and new lighting system) is economically preferred when each is justifiable on economic
grounds, but insufficient funds are available to pay for all of them?
TABLE 3 Special Considerations
Unit Measure of Cost
Method Nature of Cash Flows Limitations
Effectiveness
LCC $ primarily costs A single LCC measure gives no indication of economic merit of a building or
building component. LCC value for two or more alternatives are required for a
LCC comparison.
Alternatives being compared must be equivalent in other respects than LCC and
must be compared over the same study period.
BCR (SIR) dimensionless number benefits (savings) and costs Alternatives must be compared over the same study period unless replacement
assets can be expected to repeat the costs and savings (benefits) of the original
assets.
IRR (AIRR) percent rate of return benefits (savings) and costs If the assumed rate of return on the reinvested earnings (savings) is not equal
to the discount rate, then the IRR may yield inconsistent results with the BCR or
SIR when ranking projects.
Alternatives must be compared over the same study period unless replacement
assets can be expected to repeat the costs and savings (benefits) of the original
assets.
The Unadjusted Internal Rate of Return method may give incorrect solutions
and in some cases no unique solution.
NB (NS) $ benefits (savings) and costs Alternatives must be compared over the same study period.
PB time (usually years) benefits (savings) and costs Cash flows beyond the payback period are ignored.
The simple payback measure ignores the time value of money.
Projects based on this criterion may not be cost effective.
6.2.3.1 To determine if the time clock is cost effective in benefits or savings and are compared against the associated
accordance with the LCC method, the LCC of providing increased capital cost. If the savings from the time clock
heating and cooling without the time c
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