Many individuals and companies in our industry are working to bring about change. This may be in the form of creating a new product, introducing a new code provision, or advocating for new policy. Whatever the ultimate goal, cost needs to be considered on the road to innovation; in fact, cost is often the primary 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. How do you know the numbers are a fair representation of the market? Are the costs capturing the entire picture without missing important implications that either save or add costs? Home Innovation helps its clients answer these questions with cost studies, through which it has gained some notable insights:
- A change in building product or practice often will trigger other changes that require cost impact evaluation.
The impact can involve labor, scheduling, the balance of system materials, whole-house implications, etc. This system effect can decrease or increase the total cost.
- Costs associated with multiple new code requirements are often not cumulative.
A common misconception with new code requirements is that the cost of every requirement needs to be tallied, but they may apply only to specific building configurations, building systems, or climate zones, or may be mutually exclusive.
- Cost estimation is an estimate.
The same cost applied in a different context can have a different implication. Relative cost comparisons and directional cost evaluations are most meaningful.
- Don’t assume production costs will decline as volume increases.
Sometimes costs come down due to technology innovation and economies of scale. But for many 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.
- While first costs are not easy to capture accurately, the associated long-term benefits are harder to assess.
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, like durability measures, presenting the value in measurable terms is a challenge.
- Often what seems like a straightforward equation is more complicated.
For example, when calculating the installation costs of materials such as sheathing, you can’t simply subtract the area of wall openings from the total wall area. The openings require additional time to detail and any savings from the reduced surface area get offset by other costs. Reducing material costs but creating complication is not always a good trade-off.
- Advocates of a particular technology or code change often choose not to talk about profit.
But it needs to be included in cost estimates.