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17 October 2022

The role of cost management in transitioning to net zero

In our latest insight article, Joseph Gorman, Associate – Cost Management, explores how cost management can further increase transparency, as well as enhance and promote net zero carbon capabilities on capital works programs. 

With a 2019 World Green Building Council report stating that building construction and operation contributes 39% of the world’s carbon emissions, industry and organizations alike continue to recognize the critical nature and value of adopting decarbonization strategies and green technologies, to realize sustainable benefits for our communities (1). It is important to note that carbon emissions in this context are often broadly categorized into operational carbon and embodied carbon. Operational carbon refers to the carbon load created in running a building (building energy consumption), while embodied carbon focuses on the load created in the production, transportation, installation, maintenance and disposal of building materials.

Looking to the future, embodied carbon will account for almost half of total emissions from new construction between 2019 and 2050, and presents a particularly significant opportunity for the industry to decarbonize (2).

Running parallel to this, cost management continues to evolve, diversify and integrate alongside net-zero policies, to optimize the cost and carbon impacts of construction projects.With the introduction of the International Cost Management Standard (ICMS) 3, the profession has set a global standard for defining, benchmarking, and reporting on cost and carbon, thus providing a consistent method of measurement. 

Undoubtedly, the construction industry is currently facing a seismic challenge as we collectively strive towards net zero emissions. Combined with investment, the considerations below explore how cost management capabilities and integration of service ties in with clients’ net zero carbon strategy and transformation. 

 

Cost benchmarking and carbon prioritization 

Transparency of cost is fundamental to any informed decision-making and briefing process with regards to capital expenditure. Therefore, it is crucial that comparative cost benchmarking is established and utilized to provide a carbon price baseline when defining a business case. A core utilization of cost management, benchmarking will act as a key enabler for brief development and budget establishment, as well as determining a return-on-investment (ROI) for net zero prioritization. 

Working collaboratively with the project team, briefing decisions can be influenced at program and project definition to ensure appropriate allocation of carbon capital investment, inherently reducing a project’s carbon footprint. Overall, this is conducive to cost optimization by avoiding the potential for delays to a design program – i.e., mitigating the need for retrospective redesign or incorporating new briefing requirements. Similarly, cost managing the design through the respective gateways, it is critical for the cost and carbon implications to be co-ordinated in unison. This contributes to a better understanding of the design and highlights the most carbon effective and value-driven project solution.  

 

Life cycle costing 

Equally important is the long-term carbon assessment and inherent value of an asset. As such, an effective cost management solution will advise on the full project life cycle. This is not solely limited to capital expenditure, but also to the reduction of both initial and future costs (renewal, operational, maintenance and eventual end of life). Life cycle costing helps to facilitate the long-term decision-making process, with further transparency surrounding the cost and environmental performance of an asset, which enhances ROI and the ability to explore opportunities for carbon offsetting.  

Value management workshops can aid proper life cycle costing, serving as an early forum to understand and determine how the overarching net zero objectives are being defined, and then implemented into a construction program. These workshops drive collaboration across internal and external stakeholders, thus encouraging improved communication, innovation and the use of technological advancements, coupled with higher performing net zero design and construction processes (3).

As highlighted by the CEFC, cost effective solutions are available instantly to substantially reduce embodied carbon. The findings from this report found that initiatives being implemented, could achieve 5-18% reduction in embodied carbon whilst also achieving a 0.4-3% reduction in material costs for typical building and infrastructure projects. 

A systematic cost management approach can also be taken in the form of appraisals for specific design options, such as utilizing control strategies for Building Management Systems (BMS) or exploring cost options for a more effective and efficient HVAC strategy. Similarly at a component level, cost management partnered with the design team can explore, analyze and evaluate their whole life cost function with more carbon efficient alternatives being implemented. Some examples include MEP plant efficiency, low carbon concrete alternatives, LED lighting etc.

 

Net zero procurement strategy 

The ‘Net Zero Carbon Buildings Commitment’ of the World Green Building Council highlights the requirement for deep collaboration across the entire value chain, and radical transformation in the way buildings are designed, procured, built, occupied and deconstructed.  

  • In order to align net zero strategies with ambition and vision, objectives will need to be collaboratively mapped out and placed as a high priority when procuring and tendering our construction programs.
  • Cost management plays a fundamental role in advising and providing consistency to a client’s procurement strategy, with consideration of net zero objectives, project goals and obtaining cost-effective results from the local construction market. 

A clear and concise procurement model will ensure that all asset owners, stakeholders and disciplines are aligned and communicating the same overarching objectives, enhancing the reliability of carbon information and ensuring procured data is being extracted accordingly. 

Clients are aware of the need for a cost-effective bidding strategy combined with the prioritization of net zero, and this is where cost management adds additional value. It also puts emphasis on the requirement for robust tendering processes and procedures, to ensure that the supply chain can be correctly informed, evaluated and awarded, alongside the traditional criteria. For example, over the last few decades, OH&S has become even more critically important in construction and rightly so. An emphasis on OH&S obligations in procurement encourages suppliers to take responsibility for understanding the requirements of a client and for ensuring that what they provide is safe for users (4). Similarly, by increasing the focus on decarbonization and potentially including a heavier weighting on environmental criteria, the most economically advantageous vendor can be selected. Further, this will inherently encourage innovation, a competitive environment, and a more sustainable supply chain for a forward outlook. 

 

Cost and carbon assurance 

Applying proactive cost controls will ensure reporting from a clear baseline and deliver confidence in overall project performance, particularly around carbon neutral factors. Effective cost management in client organizations, as part of their reporting, adds value by introducing key performance indicators on net zero specifics, such as: 

  • Enhancing governance by understanding the apportionment of expenditure for preferred vendors within the supply chain. 
  • Understanding specific environmental risks and their commercial impact and assigning the appropriate risk management and mitigation strategies. 
  • Defining the performance of consultants, contractors, sub-contractors, suppliers and manufacturers, to ensure contractual requirements in relation to carbon targets are met. 
  • Understanding and analysing the apportionment of outturn actuals and spend for specific elements in relation to their carbon output, further defining elemental and component level benchmarking. 

Through up-to-date and accessible data, cost management can further enhance carbon measurement, as well as bringing consistency in the capture, analytics, and reporting of carbon data. 

 

Conclusion 

Alongside a robust roadmap, cost management can provide a programmatic approach to net zero, and in turn enable clients to further improve transparency and analyse decarbonization with a commercial interpretation. A clear procurement strategy, established benchmarking, whole life cost considerations and project control integration will ensure that construction programs outperform carbon baselines in a cost-effective way. 

 

References:

[1] World Green Building Council - Global Status Report 2017 

[2] CEFC - Australian buildings and infrastructure: Opportunities for cutting embodied carbon  

[3] NSW Government Transport Roads and Maritime Services - Value Management workshop briefing session (Additional crossing of the Clarence River at Grafton) 

[4] Australian Safety and Compensation Council - Guidance on Occupational Health and Safety in Government Procurement  

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