Value Beyond Cost Savings - Green Building Finance Consortium

Appendix FSustainable Property Financial Analysis AlternativesAnalysis/Model Description/Commentary Key Links/ExamplesR0 = Going In Capitalization Rate (percent)ICC = Initial Capital Costs (dollars)S = (AES x EC) – AOC + ROCAES = Annual Energy Savings (kBtu)EC = Energy Costs (dollars/kBtu)AOC = Additional Operating Costs (dollars)ROC + Reduced Operating Costs (dollars)This metric presumes that the benefits are ongoing andpermanent. Similar to the metrics discussed above, this metricis considered “simple” because it does not take intoconsideration the time value of money nor does it considerchanges in future energy costs, or in most cases, as used,potential non-cost related benefits of energy/carbon reduction.An advantage is that it incorporates at least some of theelements of change in property value through changes in NOI,to the extent that the decision-maker is able to determine all ofthe impacts on NOI.If the increase in property value resulting from the investmentexceeds the Initial Capital Cost, the metric is greater thanzero, and would suggest a positive investment decision.4. Simple ROI andGeneral Cost-Benefit AnalysesAs discussed above, simple ROI provides an analysis of thesimple return of an initial capital investment based on the costsavings, presuming the cost savings continues indefinitely. Fordecisions where the Simple Return on Investment is high, andaccordingly the Simple Payback time period would be short,nothing else is typically necessary to support the decision.However, as payback periods get longer, and capitalinvestments become greater, some investors have beensupplementing simple ROI or Simple Pay-Back analyses witha summary of their a project’s other potential benefits.As a starting point, general Cost-Benefit Analysis shouldinclude a discussion of potential productivity or health costsaving benefits, potential churn cost savings, recruiting oremployee retention benefits for space users, and a generalreduction in litigation risk, energy cost volatility, regulatory risk,exit risk and other issues.General industry cost-benefit studies can be found in the ResearchLibrary and Industry Resources links section of the Green BuildingFinance Consortium website (index code 3.0),Sections D. and E. in Chapter IV also provide a detailed evaluation ofsustainable property costs-benefits and guidance on assessing theirapplicability to specific sustainable property processes and features.220