Edge Debate 65: What is the true ratio? : costs and value of construction

Wednesday, November 26th, 2014 | Debates

ratio-image-2Over the past 20 years, a case has been made for investing in well-designed construction to create value for the individuals and organisations that own, manage and inhabit buildings.The main argument is that:
(i) construction and design can add considerable value for clients; and
(ii) this investment represents a small fraction of the overall cost.
A wide range of the ratios have been put forward to explain the relationship between construction cost / operational cost / staff cost. One of the earliest ratios promulgated is 1/5/200 and continues to be used today. However, other evidence (based on real cost figures and net present value) suggests the ratio may be significantly lower. For an office building in London the ratio is 1/1.5/15. Other research indicates a ratio of 1/0.4/12. Although substantially lower, these ratios can still provide justification for spending more on design and construction.
In recent years, design has been added to the ratio (i.e. 0.1/1/5/200) to reflect the potential to save money and resources by investing more in pre-design/briefing or in design itself.
How important is it for the construction industry to promote accurate figures to clients? This debate explores which ratios are appropriate to use and the consequences of inappropriate claims. What is meant by ‘added value’ and how much added value can be ascribed to the building itself? How can the intangibles from good design such as human health, wellbeing and productivity be accounted for in terms of actual value? Is there a problem if the construction industry oversells its products with inflated ratios? Does the industry have a consistent and sound approach to define the relevant ratios of cost and value? Does it have a persuasive argument about added value?
Chair: Peter Hansford, Chief Government Construction Advisor
Speakers:
• Graham Ive, Bartlett School of Construction & Project Management, UCL
• Don Ward, Constructing Excellence
• Roger Madelin CBE, Argent LLP
• Will Hughes, School of Construction Management & Engineering, Univ of Reading

We would be delighted if you could join us at this by-invitation only debate. If you would like to attend please register here. Places are limited and will be allocated on a first come basis.
Venue: The Bartlett, UCL Faculty of the Built Environment, Hampstead Road, London NW1 2BX
Timing: Debate 6.30 - 8.30 pm followed by networking and a glass of wine

    Background reading

- Constructing Excellence (2005) Be Valuable: A guide to creating value in the built environment, Richard Saxon

- Eclipse Research Consultants (2002a) Better designed buildings: improving the valuation of intangibles, A Literature review. http://www.eclipseresearch.co.uk/download/design_innovation_and_value/better_designed_buildings.pdf

- R. Evans, R. Haryott, N. Haste and A. Jones (1998) The long term costs of owning and using buildings. London: Royal Academy of Engineering.

- W. Hughes, D. Ancell, S. Gruneberg and L. Hirst (2004) Exposing the myth of 1:5:200 ratio relating initial cost, maintenance and staffing costs of office buildings. ARCOM 20th Annual conference. Available from: http://centaur.reading.ac.uk/12142/

Graham Ive (2006) Re-examining the costs and value ratios of owning and occupying buildings. Building Research & Information, 34(3), pp 230 - 245.

- S. Macmillan, ed. (2004) “The long-term costs of owning and using buildings” in Designing Better Buildings: Quality and Value in the Built Environment, pp 42-50. Abingdon: Taylor & Francis

- D. Pearce (2003) The social and economic value of construction: the construction industry’s guide to sustainable development. London: Construction Industry Research and Innovation Panel.

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