ASTM E964-15(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:E964 −15 (Reapproved 2020)
Standard Practice for
Measuring Benefit-to-Cost and Savings-to-Investment Ratios
for Buildings and Building Systems
This standard is issued under the fixed designation E964; 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.
INTRODUCTION
This is one in a series of practices for applying economic evaluation methods to building-related
decisions. Methods covered by this practice are benefit-to-cost ratio (BCR) and savings-to-investment
ratio (SIR). These are members of a family of economic evaluation methods that can be used to
measure the economic consequences of a decision over a specified period of time. The BCR is used
when the focus is on benefits (that is, advantages measured in dollars) relative to project costs. The
SIR, a variation of the BCR, is used when the focus is on project savings (that is, cost reductions)
relative to project costs.The family of methods includes, in addition to BCR and SIR, net benefits, net
savings, life-cycle cost, internal rate-of-return, adjusted internal rate-of-return, and payback (see
Practices E917, E1057, E1074, and E1121). Guide E1185 directs you to the appropriate method for
a particular economic problem.
BCR and SIR are numerical ratios that indicate the economic performance of a project by the size
oftheratio.Aratiolessthan1.0indicatesaprojectthatisuneconomic,aratioof1.0indicatesaproject
whose benefits or savings just equal its costs, and a ratio greater than 1.0 indicates a project that is
economic. While it is straightforward to use ratios to determine whether a given project is economic
or uneconomic, care must be taken to correctly interpret ratios when using them to choose among
alternative designs and sizes of a project, or to assign priority to projects competing for limited funds.
1. Scope conversions to SI units that are provided for information only
and are not considered standard.
1.1 This practice covers a procedure for calculating and
1.5 This standard does not purport to address all of the
interpreting benefit-to-cost ratios (BCR) and savings-to-
safety concerns, if any, associated with its use. It is the
investment ratios (SIR) as an aid for making building-related
responsibility of the user of this standard to establish appro-
decisions.
priate safety, health, and environmental practices and deter-
1.2 A basic premise of the BCR and SIR methods is that
mine the applicability of regulatory limitations prior to use.
future as well as present benefits and costs arising from a
1.6 This international standard was developed in accor-
decision are important to that decision, and, if measurable in
dance with internationally recognized principles on standard-
dollars, should be included in calculating the BCR and SIR.
ization established in the Decision on Principles for the
1.3 Dollar amounts used to calculate BCR and SIR are all
Development of International Standards, Guides and Recom-
discounted, that is, expressed in time-equivalent dollars, either
mendations issued by the World Trade Organization Technical
in present value or uniform annual value terms.
Barriers to Trade (TBT) Committee.
1.4 The values stated in inch-pound units are to be regarded
2. Referenced Documents
as standard. The values given in parentheses are mathematical
2.1 ASTM Standards:
E631 Terminology of Building Constructions
This practice is under the jurisdiction of ASTM Committee E06 on Perfor-
mance of Buildings and is the direct responsibility of Subcommittee E06.81 on
Building Economics. For referenced ASTM standards, visit the ASTM website, www.astm.org, or
Current edition approved April 1, 2020. Published May 2020. Originally contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM
approved in 1983. Last previous edition approved in 2015 as E964-15. DOI: Standards volume information, refer to the standard’s Document Summary page on
10.1520/E0964-15R20E01. the ASTM website.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States
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E964−15 (2020)
E833 Terminology of Building Economics mutually exclusive alternative that serves as the base for
E917 Practice for Measuring Life-Cycle Costs of Buildings computing the ratio. It may be contrasted with the life-cycle
and Building Systems cost(LCC)methodthatrequirestwoLCCmeasurestoevaluate
E1057 Practice for Measuring Internal Rate of Return and the economic performance of a building or building system—
Adjusted Internal Rate of Return for Investments in one for each alternative.
Buildings and Building Systems
5.2 The ratio indicates discounted dollar benefits (or sav-
E1074 Practice for Measuring Net Benefits and Net Savings
ings) per dollar of discounted costs.
for Investments in Buildings and Building Systems
5.3 The BCR or SIR can be used to determine if a given
E1121 Practice for Measuring Payback for Investments in
building or building system is economic relative to the alter-
Buildings and Building Systems
native of not having it.
E1185 Guide for Selecting Economic Methods for Evaluat-
ing Investments in Buildings and Building Systems 5.4 TheBCRorSIRcomputedonincrementsofbenefits(or
E1369 Guide for Selecting Techniques for Treating Uncer-
savings) and costs can be used to determine if one design or
tainty and Risk in the Economic Evaluation of Buildings size of a building or system is more economic than another.
and Building Systems
5.5 The BCR or SIR can be used as an aid to select the
E1765 Practice for Applying Analytical Hierarchy Process
economically efficient set of projects among many competing
(AHP) to Multiattribute DecisionAnalysis of Investments
for limited funding. The efficient set of projects will maximize
Related to Projects, Products, and Processes
aggregate net benefits or net savings obtainable for the budget.
E1946 Practice for Measuring Cost Risk of Buildings and
Building Systems and Other Constructed Projects
6. Procedure
E2204 Guide for Summarizing the Economic Impacts of
6.1 The recommended steps for carrying out an economic
Building-Related Projects
evaluation using the BCR or SIR method are summarized as
2.2 ASTM Adjunct:
follows:
Discount Factor Tables - Adjunct to E917 Practice for
6.1.1 Identify objectives, constraints, and alternatives (see
Measuring Life-Cycle Costs of Buildings and Building
Section 7),
Systems - Includes Excel and PDF Files
6.1.2 Compile data and establish assumptions for the evalu-
ation (see Section 8),
3. Terminology
6.1.3 Compute BCR or SIR (see Section 9),
3.1 Definitions—For definitions of general terms related to
6.1.4 Analyze the BCR or SIR results and make a decision,
building construction used in this practice, refer to Terminol-
taking into account uncertainty, unquantified effects, and fund-
ogy E631; and for general terms related to building economics,
ing or cash-flow constraints (see Section 10), and
refer to Terminology E833.
6.1.5 Document the evaluation and prepare a report if
needed (see Section 11).
4. Summary of Practice
7. Objectives, Constraints, and Alternatives
4.1 This practice identifies related ASTM standards and
adjuncts. It outlines the recommended steps for carrying out an
7.1 First, the decision-maker’s objectives should be clearly
analysis using the BCR or SIR method, explains each step, and
specified.This is crucial to defining the problem and determin-
gives examples. This practice discusses the importance of
ing the suitability of the BCR or SIR method. Second,
specifying objectives, alternatives, and constraints at the outset
constraints that limit potential alternatives for accomplishing
of an evaluation. It identifies data and assumptions needed for
the objectives should be identified. Third, alternatives that are
calculating BCRs and SIRs, and shows how to calculate the
technically and otherwise feasible in light of the constraints
ratios. This practice emphasizes the importance of correctly
should be identified.
interpreting the meaning of the ratios in different applications,
7.2 The example in this section illustrates the objective,
andoftakingintoaccountuncertainty,unquantifiedeffects,and
constraints, and alternatives for a building investment that
funding constraints. It identifies requirements for documenta-
could be evaluated using the BCR method. The decision-
tion and recommends appropriate contents for a BCR or SIR
maker’s objective is to maximize net benefits (profits) from
report. This practice also explains and illustrates the applica-
investment in new stores in a national chain. The problem is to
tion of the BCR and SIR methods to decide whether to accept
choose locations for the stores. There are two constraints: (1)
or reject a project, how much to invest in a project, and how to
the chain already has a sufficient number of stores in the
allocate limited investment funds among competing uses.
northeast, and (2) there is only enough investment capital to
open five stores. Twelve alternative locations (excluding loca-
5. Significance and Use
tions in the northeast) are identified as potentially profitable.
5.1 The BCR and SIR provide measures of economic
The BCR can help the decision-maker identify which five of
performance in a single number that indicates whether a
the twelve potential locations will maximize aggregate net
proposed building or building system is preferred over a
benefits (profits) from the available budget. The approach is to
compute a BCR for each location and rank the locations in
descending order of their BCRs. If the budget cannot be fully
Available from ASTM International Headquarters. Order Adjunct No.
ADJE091717-EA. Original adjunct produced in 1984.Adjunct last revised in 2003. allocated by selecting locations in descending order of their
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E964−15 (2020)
BCRs, the computation of aggregate net benefits is recom- stances. (Factors influencing the level of effort are discussed in
mended to confirm that aggregate net benefits are maximized the paragraph on comprehensiveness in Section 8 of Practice
by the selected locations. E917.)
7.3 The example in this section describes the objective,
9. Calculation of BCR and SIR
constraints, and alternatives for a building investment that
couldbeevaluatedusingtheSIRmethod.Thebuildingisajail.
9.1 In concept, the BCR and SIR are simple: benefits (or
The objective is to reduce the cost of maintaining a target level
savings) divided by costs, where all dollar amounts are
of security (as might be measured by number of escapees per
discounted to present or annual values.
year). Constraints are that techniques to increase security must
9.2 In practice, it is important to formulate the ratio so as to
beunobtrusivetothesurroundingneighborhoodandmusthave
satisfy the investor’s objective. This requires attention to the
low maintenance. The superintendent of prisons is evaluating
placement of costs in the numerator and denominator. To
with the SIR method a new perimeter detection device that
maximize net benefits from a designated expenditure, it is
costs 1 million dollars to install, and reduces labor costs for
necessarytoplaceinthedenominatoronlythatportionofcosts
guards by 30 %. If the SIR is greater than 1.0, the device is
on which the investor wishes to maximize returns. For
deemed cost effective.
example, to maximize the return on investor equity, place only
that part of the investment budget representing investor’s
8. Data and Assumptions
equity funds in the denominator of the ratio; deduct other costs
8.1 Guidelines for compiling data and making assumptions
from benefits or savings in the numerator. On the other hand,
are treated in detail in Practice E917, and therefore they are
to maximize the return on the total of equity and borrowed
discussed only briefly here.
investment funds, place their sum in the denominator of the
ratio.
8.2 To calculate BCR or SIR, estimates typically are needed
for revenue or other benefits; acquisition costs, including costs
9.3 Formulation is important because changing the place-
of planning, design, engineering, construction, purchase,
ment of cost and benefit items can induce changes in the ratio.
installation, land, and site preparation; utility costs, including
Changing the placement of a cost item from the denominator
costs of energy, water, and sewage; nonenergy operating and
(where it increases costs) to the numerator (where it decreases
maintenance costs; repair and replacement costs; resale or
benefits or savings) will not cause a project that appears
retention values; disposal costs; insurance costs; and, if
economic by one formulation of the ratio to appear uneco-
applicable, functional use costs.
nomic by a different formulation. But changes in the numerical
value of the ratio can affect relative rankings of competing,
8.3 Information is also needed regarding the study period,
independent projects, and thereby influence investment deci-
discount rate, tax rates and applicable tax rules, and, if an
sions.
integral part of the investment package, the terms of financing.
(These topics are treated in Section 8 of Practice E917.)
9.4 Biasing effects, detrimental to economic efficiency, can
resultfromcertainformulationsoftheBCRandSIRratios.For
8.4 The outcome of an analysis will vary, depending on the
example, when allocating an investment budget among com-
data estimates and assumptions. Thus, it is important to select
peting projects that differ significantly in their maintenance
carefully the assumed values for critical parameters to arrive at
costs, placing maintenance costs in the denominator with
a realistic solution.
investment costs tends to bias selection away from projects
8.5 Iftheoutcomeappearsparticularlysensitivetothevalue
with relatively high maintenance costs, even when they offer
assigned to a given parameter, and the estimate is of poor or
higher net benefits (profits) than competing projects. Similar
unknown quality, the analyst may wish to improve the quality
biasing effects can occur in the placement of other noninvest-
of the data. (Sensitivity analysis, a useful technique for
ment costs such as energy or labor costs. This outcome reflects
identifying critical parameters, is treated in 10.3 of Practice
the fact that adding a given amount to the denominator of a
E917.)
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