ASTM E1185-93(1998)e1

NOTICE: This standard has either been superseded and replaced by a new version or discontinued.
Contact ASTM International (www.astm.org) for the latest information.
e1
Designation: E 1185 – 93 (Reapproved 1998) An American National Standard
Standard Guide for
Selecting Economic Methods for Evaluating Investments in
Buildings and Building Systems
This standard is issued under the fixed designation E 1185; 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 (e) indicates an editorial change since the last revision or reapproval.
e NOTE—Footnote 5 of this standard was editorially corrected in September 1998.
1. Scope 4. Significance and Use
1.1 This guide identifies types of building design and 4.1 Standard practices for measuring the economic perfor-
building system decisions that require economic analysis and mance of investments in buildings and building systems have
recommends ASTM practices, adjuncts, and computer pro- been published by ASTM. A computer program that produces
grams that may be used to implement the appropriate economic economic measures consistent with these practices is avail-
methods for each decision type. able. Discount factor tables have been published by ASTM to
facilitate computing measures of performance for most of the
2. Referenced Documents
practices. A microcomputer program database and user’s guide
2.1 ASTM Standards:
have also been published by ASTM as adjunct to help estimate
E 833 Terminology of Building Economics maintenance, repair, and replacement data used in performing
E 917 Practice for Measuring Life-Cycle Costs of Buildings
economic analyses.
and Building Systems 4.2 This guide can be used to: (1) identify types of building
E 964 Practice for Measuring Benefit-to-Cost and Savings-
design and system decisions that require economic analysis; (2)
to-Investment Ratios for Buildings and Building Systems match the technically appropriate economic methods with the
E 1057 Practice for Measuring Internal Rate of Return and
decisions; and (3) locate the methods in the ASTM practices
Adjusted Internal Rate of Return for Investments in Build- and adjuncts listed in Section 2.
ings and Building Systems
4.3 More than one method can be technically appropriate
E 1074 Practice for Measuring Net Benefits for Investments for many building decisions. Therefore the choice in practice
in Buildings and Building Systems
of which technically appropriate economic method to use for
E 1121 Practice for Measuring Payback for Investments in evaluating a particular building decision will often depend on
Buildings and Building Systems
the perspective of the user. Some examples of factors that
2.2 ASTM Adjuncts: influence the user are: (1) ease of applying the methods, (2)
Discount Factor Tables,
level of familiarity of the user with the methods, (3) preference
Adjunct to Practice E 917 of the user for different methods, and (4) presence of budget
Computer Program and User’s Guide to Building Mainte-
limitations for the projects.
nance, Repair, and Replacement Database for Life-Cycle 4.4 This guide identifies some features and limitations of the
Cost Analysis, methods that might influence users’ choices under varying
Adjunct to Practices E 917, E 964, E 1057, E 1074, E 1121
conditions.
3. Terminology 5. How to Use This Guide
3.1 Definitions—For definitions of terms used in this guide,
5.1 Table 1 indicates which standard practices (that is,
refer to Terminology E 833. economic methods) are technically appropriate for the follow-
ing four types of building investment decisions: acceptance/
rejection, design, size, and priority.
5.1.1 In the context of this guide, an acceptance/rejection
This guide is under the jurisdiction of ASTM Committee E-6 on Performance
decision pertains to the cost effectiveness of an individual
of Buildings and is the direct responsibility of Subcommittee E06.81 on Building
building or building system. This type of decision is made
Economics.
Current edition approved Jan. 15, 1993. Published March 1993. Originally
published as E 1185 – 87. Last previous edition E 1185 – 87.
Annual Book of ASTM Standards, Vol 04.11.
3 Petersen, S. R., “The NIST Building Life-Cycle Cost (BLCC) Computer
Available from ASTM Headquarters. Order PCN 12-509170-10.
4 Program” and documentation—The NIST Building Life-Cycle Cost (BLCC) Pro-
Available from ASTM Headquarters. Order PCN 12-509171-10 for the 3.5 in.
gram: User’s Guide and Reference Manual, NISTIR 5185-3, National Institute of
disk. Order PCN 12-509172-10 for the 5.25 in. disk.
Standards and Technology, 1995.
Copyright © ASTM, 100 Barr Harbor Drive, West Conshohocken, PA 19428-2959, United States.
NOTICE: This standard has either been superseded and replaced by a new version or discontinued.
Contact ASTM International (www.astm.org) for the latest information.
E 1185
A
TABLE 1 Standard Practices For Making Building Decisions
5.3 Once the type of decision has been identified and Table
Applicable Standards 1 has been consulted for the technically appropriate method,
Type of
there will be several methods from which to choose. Note that
BCR
Building
LCC IRR NB PB
(SIR)
Decision while all of the methods that are marked as appropriate for a
(E 917) (E 1057) (E 1074) (E 1121)
(E 964)
given decision will generally give answers that support the
BBBB C
Acceptance
same decision (with the exception of payback), there are likely
or rejection
BD DB E to be special considerations that make one or more methods
Design
BD DB E
Size preferred over the others. Examine the special considerations
EBBEE
Priority or
listed in Table 3 before making a final choice of methods.
ranking
5.4 Examine the practice(s) that corresponds to the chosen
A
All of the practices require discounting operations, but only Practice E 917
method(s). In the selected practice(s), read the sections on
explains discounting in detail. All of the methods can be applied using techniques
for treating uncertainty and risk. Practice E 917 discusses briefly some of these significance and use, applications, and limitations. If the
techniques. The other practices do not discuss them.
practice(s) still seems appropriate, follow its procedures. If not,
B
Technically appropriate standard practice when total discounted benefits
repeat the process using Tables 1 through 3 until an acceptable
(savings) and costs are considered.
C
Note limitations in Table 3. practice has been found or it has been determined that none of
D
Technically appropriate standard practice when incremental discounted ben-
the practices is suitable for the decision at hand.
efits (savings) and costs are considered.
E 5.5 For assistance in calculating the measure(s) of economic
Not recommended.
performance provided by the selected method(s), use the two
independently of other project evaluations. It focuses on the adjuncts. The adjunct on Discount Factor Tables supports
manual calculations for all of the methods. The microcomputer
merits of a single choice rather than on determining the most
cost-effective design or size. database program helps you estimate maintenance, repair, and
replacement data. The Building Life-Cycle Cost Computer
5.1.2 A design decision pertains to choices among compet-
ing designs for an individual building or building system, Program and User’s Guide supports computer calculations for
all the methods except net benefits where revenues are in-
where only one design can be chosen.
5.1.3 A sizing decision pertains to choices among compet- volved, and payback.
ing sizes or investment levels for an individual building or
6. Illustrative Cases
building system, where only one size or level can be chosen.
5.1.4 A ranking decision entails choosing one or more 6.1 Section 6 illustrates how to use this guide to choose the
projects from a group of cost-effective projects when the appropriate practice for each of the four types of building
available budget is not sufficient to fund them all. investment decisions listed in Table 2.
5.1.5 Examine Table 1 to find which methods should be 6.2 Acceptance or Rejection Decisions:
considered for a given decision. The ASTM designations are 6.2.1 If it is known (by recognition of the type of decision
given in parentheses under the method names. or by having examined examples in Table 2) that the building
5.2 If there is any doubt as to which type of building decision to be made is one of accepting or rejecting an
decision shown in Table 1 best applies, consult the examples in individual project, then a choice must be made from the five
Table 2. Table 2 lists examples for each of the four types of practices listed in Table 1. To illustrate how such a choice
decisions shown in Table 1. Find in Table 2 a building decision might be made, an accept/reject building decision is evaluated
similar to the one being analyzed, and select the corresponding in terms of the special considerations in Table 3.
decision type from Table 1. Section 6 contains illustrative cases 6.2.2 An example of an accept/reject building decision is
of this process. whether to install a programmable time clock to control
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?
NOTICE: This standard has either been superseded and replaced by a new version or discontinued.
Contact ASTM International (www.astm.org) for the latest information.
E 1185
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 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 $ 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.
heating, ventilating, and air conditioning (HVAC) equipment in benefits or savings and are compared against the associated
a commercial building. The time clock would reduce electricity increased capital cost. If the savings from the time clock
consumption by turning on only that part of the HVAC exceed its associated costs (for example, if the SIR > 1.0), then
equipment that is needed during hours when the building is not the time clock is cost effective.
occupied. Each of the five practices indicated in Table 1 for this
6.2.5 The third method in Table 1 is the internal rate of
type of decision is examined to see how useful it would be in
return (IRR). This is the only method in Table 3 that provides
assessing the cost effectiveness of the time clock.
a rate-of-return measure in percentage terms. To use the IRR to
6.2.3 The first method indicated in Table 1 is life-cycle cost
evaluate the time clock investment, savings and cost data are
(LCC). Life-cycle costs are the sum over a given study period
needed. The IRR is that rate of interest that discounts the future
of the costs of initial investment (less resale value), replace-
stream of cash flows (net savings in this case) to a sum that just
ments, operations (including energy use), and maintenance and
equals the investment cost of the time clock. If the IRR is
repair of an investment decision (expressed in present or
greater than the minimum acceptable rate of return to the
annual value terms). Table 3 shows that the LCC method
investor (MARR), then the time clock is cost effective.
provides a dollar measure. Thus if decision makers want a
NOTE 1—The Internal Rate of Return of Practice E 1057 defines two
dollar measure of cost effectiveness, LCC would meet that
IRR measures: the unadjusted IRR (UIRR) and the adjusted IRR (AIRR).
criterion. Table 3 also shows that the LCC method is most
The UIRR measure assumes that the net cash flows are reinvested at a rate
useful where cash flows are primarily costs. If the principal
equal to that earned on the original investment, whereas the AIRR
items affected by the time clock are increased capital costs for
measure assumes that the net cash flows are reinvested at a rate different
the time clock and reduced energ
...