Calculating the true cost of innovation can be complicated. We can help.

It’ll Cost You! Where Codes Meet Costs

October 12, 2018

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Creating or influencing positive change in any industry can be hard. Very hard. It requires time. It requires expertise. It often requires a little luck in addition to a lot of hard work. And multiple pieces must fall into place in just the right way and just the right sequence. Creating change and innovation in home building is no different.

There are lots of passionate, driven, and inspired individuals and companies in our industry who are working to bring about positive change. This may be in the form of developing a new product, testing a new construction technique/method, introducing a new building code provision, or advocating for a new industry policy. Whatever the ultimate goal, cost is always a factor that needs to be considered on the road to innovation; in fact, cost is often the primary decision-making factor that stops a great idea from going forward.

Evaluating cost implications of a new product or process and weighing the expected benefits is never a straightforward exercise. It’s not merely a matter of looking something up in RS Means or other published construction cost guides. How do you know the numbers are a fair representation of the market? How do you know you are comparing apples to apples? Are the costs capturing the entire picture without missing important implications that either save or add costs? These are some of the questions Home Innovation Research Labs helps our clients identify and answer through cost studies.

We have a long history of conducting these types of studies and have developed a specific body of expertise. Some insights we’ve gained on the road to obtaining this expertise are summarized below.

System impact – Typically, a change in building product or practice will trigger other changes that require cost impact evaluation. The impact can involve labor, scheduling, the balance of the system materials, whole-house implications, etc. This system effect can decrease or increase the total cost.

Cost of material vs. total cost of implementation – Looking up a price of a new product on a website and multiplying it by the square footage of the applicable surface will NOT be representative of the cost impact for a wide range of reasons. This may seem obvious, but we encounter this flawed logic again and again.

The “openings in walls” dilemma – Often what seems like a straightforward equation can be much more complicated. As a practical example, when calculating the installation costs of materials such as sheathing or cladding, you can’t simply subtract the area of wall openings from the total wall area; quite the contrary. The openings require additional time to detail and any savings from the reduced surface area get offset by other costs. This is kind of a twist on the addition-by-subtraction adage, though in this case what you’re adding is complexity and required time through the “subtraction” of surface area of the material.

Costs associated with multiple new code requirements are often not cumulative – A common misconception when confronted with a series of new requirements in a published set of codes is that the cost of every requirement needs to be added to tally. However, requirements may be applicable to only specific building configurations, building systems, or climate zones or may be mutually exclusive.

Cost estimation is just that – an estimation – Judgement and expertise is required when using estimates. The same cost number applied in a different context can have a very different implication. Relative cost comparisons and directional cost evaluations are most meaningful.

Don’t assume production costs will decline as volume increases – For some materials (e.g., PV) costs come down dramatically over time due to technology innovation and economies of scale. However, for many new products this is not the case. Product costs are often driven by the cost of raw materials and labor that do not decrease substantially even as the product gains market share.

First cost vs. long-term value – While first costs (installed cost) are not easy to capture accurately, the associated long-term benefits are often even harder to assess and communicate in a meaningful way. For some technologies, such as energy efficiency measures, the direct benefits of lower utility bills are relatively easy to estimate and weigh against the initial investment. For others, such as durability measures, presenting the value in measurable terms is much more challenging. And for some factors, such as those with potential life safety implications, the conversation tends to shift away from cost altogether; yet cost is always a part of the construction process and remains a critical consideration in the marketplace.

Profit is not a four-letter word – We often see advocates of a particular technology or code change choose not to include profit into the conversation. But, no matter the reasons behind and benefits of a proposed innovation, profit is a part of the equation and a reality of a market economy. It needs to be included into cost estimates.

Many of the evaluations focus on costs associated with building code changes and deployment of new technologies – some examples are available on our website. Other studies are done on a proprietary basis and intended to help our clients with their internal decision making.

If you’d like more information on cost studies in residential construction, get in touch.

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