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Ratio of operating and maintenance costs to initial costs of building services

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Article · December 2007

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Shaomin Wu Derek John Clements-Croome

University of Kent University of Reading
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 T ECHNICAL A RTICLE
stage is widely adopted as the principal
(and sometimes only) criterion for
Ratio of Operating and equipment selection. This single criterion
is simple to use but often results in bad
Maintenance Costs to Initial Costs financial decisions.
The initial capital cost of some
equipment can be found easy to afford,
of Building Services Systems however, owing to costs with respect to
operation, maintenance and disposal, the
extremely complex capital cost of a system
Dr. Shaomin Wu and Derek Clements-Croome is normally less than its LCC. Depending
on the equipment type, the ownership cost
ABSTRACT: This article addresses two critical issues associated with reliability and maintenance over the life cycle span may vary from 10 to
of building services systems. The first is the ratio of operating and/or maintenance costs to ini- 100 times the procurement cost [2].
tial costs for building services systems. It is an important parameter for life cycle costing and To make better financial decisions,
maintenance policy development. The second is the proportion of items among building serv-
LCC should be taken into consideration
ices systems that need preventive maintenance. In this article, the example used is to estimate
the ratios based on a cost dataset. Correctly estimating the ratio is important, but using a con- and carefully analyzed in each stage of
stant ratio in life cycle costing may result in wrong decisions. The proportion of preventive equipment's life starting from its cradle to
maintenance for building services systems is estimated on the basis of the distribution of failure grave for building services systems. Hence,
patterns. it is important to estimate the relationships
between the initial costs, maintenance and
KEY WORDS:: Building services system, failure pattern, and life cycle cost operating costs at the design stage.
Evidence shows that the cost for the
uilding systems encompass This article provides discussions on the operation and maintenance of a building

B mechanical, electrical, security,

safety, information
communication systems. The systems are
and
installed to support the required business
functions of the building, so it is essential
that they carry out these functions without
interruption. If accomplished through
reliability, this will meet the users' needs
and result in cost effectiveness throughout
the whole life cycle. The ability of the
systems to continually perform
interactively is of vital importance.
Reliability defines the ability of an
item to perform its required functions
under stated conditions for a specified
period of time. It is an essential factor used
in assessing the performance of building
services systems. Poor reliability directly or
indirectly affects health, security, and
safety, as well as business continuity, and
systems with high reliability may offer
opportunities for less maintenance.
The ratio of operating and
maintenance costs to initial costs for
buildings is an important factor for the
whole lifecycle of building services
systems. The ratio is associated with initial
investment, project management, and
system design. It is important to correctly
estimate the ratio from a life cycle costing
perspective. Different ratios are introduced
in resources, which may cause confusions
in applications. There is a need to clarify
the understanding of the ratio.
relationships between initial costs, and
operating and maintenance costs.
This article first discusses the ratio of
operating and maintenance costs to initial
costs; a model on the relationship between
maintenance costs and initial costs is also
presented. Conclusions are presented at
the end of the article.
Ratio of Operating and/or Maintenance
Costs to Initial Costs
Building services systems are complex
encompassing many different kinds of
components. The selection of
components, the systems layout and the
inter-connections are all important [1].
However, there is a trade-off between
components' reliability and their life cycle
costs (LCC). The life cycle of building
services systems is usually divided into
several stages: client requirements, design,
installation and commissioning, operation
and maintenance, and disposal and reusing
stages in the construction industry.
LCC is the summation of cost
estimates of these stages. The objective of
LCC analysis is to choose the most cost
effective approach from a series of
alternatives so that the least long-term
ownership cost is achieved. The basic
elements of LCC may involve initial
capital costs, operating costs, maintenance
costs and disposal costs/salvage costs.
Initial capital cost incurred at the
system design stage and the installation
system is a significant element of its LCC.
Research on the ratio for commercial office
buildings has been conducted by
researchers [3, 5, 6].
On the basis of research in
commercial office buildings, R. Evans and
his co-authors, identified the life cost ratio
covering construction cost; maintenance
and operating costs, and staff costs [3].
They found that maintenance and building
operating costs can be five times
construction cost. According to the
explanation from W. Hughes and his co-
authors, the initial cost cited by Evans is
the construction cost that is the total
construction cost, including land
acquisition and professional fees. But, this
total excludes finance costs and
maintenance costs. The maintenance cost
includes energy costs, general
maintenance repairs and
decoration/refurbishment; operating costs
including staff, equipment, consumables
and all other business overheads [5].
The building life was 25 years. W.
Hughes and his co-authors argued that the
ratio from Evans is hugely overstated. By
using published sources of data, they have
found that maintenance costs should be
0.3 times the total cost of building [5].
Studying on a 30 year period, shows that
initial building costs account for
approximately two percent of the total,
while operating and maintenance costs
equal six percent, and personnel costs

30 Cost Engineering Vol. 49/No. 12 DECEMBER 2007

equal 92 percent [6]. The research on the
ratio shows its importance.
Essentially, there is a difference
between a building and the services
systems in the building. It is also interesting
to estimate the ratio of certain building
services systems. Take the HVAC (heating,
ventilation, air-conditioning) system costs
as an example. Washington State
Department of General Administration
estimates that maintenance and
replacement costs is 0.163 times first cost.
The original document about this ratio
from Washington State Department of
General Administration cannot be found,
so we used the material that quotes this
ratio [4]. However, as indicated below, the
ratio may vary from system to system. The
applicability of fixed ratios should hence be
limited to certain specific time, areas, and
building services systems.
The data in table 1 shows initial costs
to operating and maintenance costs of 20
HVAC systems over 25 years from J.E.
Schaufelberger and R.H. Jacobson [7]. The
data was used to make intelligent decisions
from a life cycle cost perspective regarding
the selection of HVAC systems for an office
building.
The distributions of the ratios of
maintenance costs to initial costs, and
operating and maintenance costs to initial
costs are in figure 1 and figure 2,
respectively. The figures show significant
outliers in their tail’s outmost values in
both the figures. These tail values (i.e,
outliers) come from system ‘packaged
terminal units.’ Some basic statistics are
shown in table 2. The two figures indicate
moderate skewness and kurtosis. Tests for
goodness of fit on the ratios with the
Kolmogorov-Smirnov test show that both of
them are not from normal distributions.
X-axis: Ratio; Y-axis: Number of Systems
The relationship between initial costs
and operating and maintenance costs is
modeled in equation 1. The relationship
between initial costs and maintenance
costs is modeled in equation 2. These
regression models show how much the
maintenance costs, and operating and
maintenance costs depend on the initial
costs.
Operating and Maintenance Costs =
9220172 - 5:863 x Initial Costs
based on a cost dataset are estimated and
(equation 1) discussed [7]. The distributions of these
Maintenance Costs = 605216:7 - 0:295
x Initial Costs
(equation 2)
Based on the above discussion, the
following is true,
• the ratios of maintenance costs to
initial costs range from 0.45 to 1.80;
and,
• the ratios of operating and
maintenance costs to initial costs are
larger than 5, and range from 4.75 to
30.
The mean of the ratios of maintenance
costs to initial costs in table 2 is 0.69 that is
not five as S. Fuller indicated [4]. As the
building services systems can vary with
different building times, locations and
types, it is inferred that the ratios should
distribute in a certain interval rather than a
fixed constant.
n this article, the ratios of
I maintenance costs, and operating and
maintenance costs to initial costs

System First cost Maintenance cost Energy cost

US Dollar $ $
Absorption chiller with unit ventilators 777817 413670 4662826
Air-cooled chiller with fan-powered VAV series terminal units 732112 388723 4468007
Centrifugal chiller with fan coil unit 766650 368725 4198064
Centrifugal chiller with dual duet VAV units 814433 367788 4122939
Centrifugal chiller with fan-powered VAV series terminal units 784026 389557 4198064
Centrifugal chiller with fan-powered VAV parallel terminal units 784026 389557 4122939
Centrifugal chiller with unit ventilation 766650 368725 4198064
Heat pump with bypass VAV 799644 499314 5287256
Helical rotary chiller with fan coil unit 723389 381199 4370581
Helical rotary chiller with fan powered VAV series terminal units 740765 414406 4295457
Packaged terminal units 304077 536735 8231932
Rooftop units with fan-powered VAV series terminal units 610981 419435 5330627
Rooftop units with fan-powered VAV parallel terminal units 610981 419435 5330627
Rooftop with VAV and reheat 593605 404934 5330627
Rooftop units with bypass VAV system 567542 426702 5388443
Rooftop units with constant volume variable temperature boxes 593605 397667 5180411
Self-contained with bypass VAV 589172 434705 4893193
Self-contained variable temperature constant volume 615236 393706 4835343
Self-contained with fan-powered VAV series terminal units 632612 414472 4835343
Water source heat pump with cooling tower 399644 514429 5345073
Table 1 — HVAC Costs [7]

Ratios Median Mean Standard deviation Skewness Kurtosis

Maintenance costs over initial costs 0.63 0.69 0.31 2.74 7.95
Operating and maintenance costs over initial costs 7.77 9 5.17 3.29 12.33
Table 2 — Basic Statistics of Ratios

Cost Engineering Vol. 49/No. 12 DECEMBER 2007 31

 ratios are investigated. A model of the
relationship between initial costs and
maintenance costs, and a model of the
relationship between initial costs, and
operating and maintenance cost are
presented.
For a building as a whole, R. Evans
and his co-authors show a ratio of costs of
Figure 1 — Histogram of the Ratio of Maintenance Costs to Initial Costs
Figure 2 — Histogram of the Ratio of Operating and Maintenance Costs to Initial Costs
32
1:5:200, where for every dollar spent on
construction cost, five are spent on
maintenance and building operating costs
and $200.00 on staffing and business
operating costs [3].
For HVAC systems in a building, A.
Osso and his co-authors show that initial
building costs account for approximately
Cost Engineering Vol. 49/No. 12 DECEMBER 2007
two percent of the total, while operating
and maintenance costs equal six percent,
and personnel costs equal 92 percent [6].
Modeling on a dataset including 20
costs of HVAC systems, this article shows
that the ratios of operating and
maintenance costs to initial costs range
from 4.75 to 30, and the ratios of
maintenance costs to initial costs range
from 0.45 to 1.8. The results show that the
median of the ratio initial building costs to
operating and maintenance costs is 1:7.77.
If one only looks at the medians of the
ratios, and assume that 90 percent of the
total costs are on staffing and business
operating costs, and 10 percent is on initial
costs, operating and maintenance costs,
then one has a ratio of 1:7.77:78.93.
The conclusion is that correctly
estimating the ratio of operating and
maintenance costs to initial costs is
important, but using a constant ratio in life
cycle costing may result in wrong
decisions. The ratios may distribute within
an interval, but are not fixed constants. The
models show how the operating and
maintenance costs, and the maintenance
costs of HVAC systems depend on the
initial costs.
The results of the article are helpful for
the designers of building services systems,
and researchers on developing reliability
and maintenance policies. ◆
REFERENCES
1. D. J. Croome. Operating Aspects of
Building Services. Proceedings of
Building Appraisal Maintenance and
Preservation Symposium. University of
Bath, 1985.
2. B. S. Dhillon. Life Cycle Costing:
Technique, Models and
Applications. New York: Gordon and
Breach, 1989.
3. R. Evans, H. Haryott, N. Haste, and A.
Jones. The Longterm Costs of
Owning and Using Buildings.
London: The Royal Academy of
Engineering, 1998.
4. S. Fuller. Life-cycle Cost Analysis;
http://www.wbdg.org/design/lcca.php
2005.
5. W. Hughes, D. Ancell, S. Gruneberg,
and L. Hirst. Exposing the Myth of the
1:5:200 Ratio Relating Initial Cost,
Maintenance and Staffing Costs of
Office Buildings. Proceedings 20th
Annual ARCOM Conference,
373/382. Edinburgh; UK, 2004.
6. A. Osso, D. Gottfried, T. Walsh, and L.
Simon. Sustainable Building The AACE International
Technical Manual. Technical Report,
US Green Building Council 1996. EDUCATION ENDOWMENT FUND
7. J. E. Schaufelberger and R. H.
Jacobson. Selecting Optimum AACE has created a special Education Endowment Fund to pro-
Mechanical Systems for Office vide continued support for the development of its expanded educational
Buildings. Cost Engineering, 42 (5),
agenda. The Education Endowment Fund is collecting a financial pool
40{43 2000.
of invested capital, the earnings of which will be used in support of these
ABOUT THE AUTHOR educational programs.
Dr. Shaomin Wu received his M.Sc.
• The Education Endowment Fund is your means of long-term support to
and Ph.D. in applied mathematics. His
AACE International and it's goal of all forms of educational outreach.
research interests include system reliability
analysis, statistical process control, data • The Education Endowment Fund needs your support. Will you please
mining and machine learning. He has consider a Year End tax-deductible gift?
published over 40 papers with conferences
• The opportunity to make a tax-deductible contribution to the Education
and in journals, including “Reliability
Endowment Fund comes every time you renew your membership. Please
Engineering and System Safety,” IEEE
consider making a gift.
Transactions on Reliability and
Microelectronics and Reliability. He is a • Your contribution of Five Thousand Dollars or more is individually recog-
member of the European Safety and nized at the next Annual Meeting.
Reliability Association. He can be
• Please make a meaningful contribution to the Education Endowment
contacted by sending e-mail to:
shaomin.wu@reading.ac.uk. Fund.

Derek Clements-Croome is a If you would like to make a donation to the Education Endowment
professor of construction engineering and Fund please log on to www.aacei.org or call the AACE International
Deputy Chairman of the Intelligent Headquarters office at 800.858.COST.
Buildings Group Management
Committee, Chairman of the Natural
Ventilation Group, the Education and
Learning Group, and Whole Life
Performance Task Group to the Charted
Institution of Building Service Engineers.
He has published 12 books and over 200
papers. His research interests include
intelligent buildings, design of workplaces,
logistic support analysis, individual
environmental control, low energy
buildings, indoor air quality, alternative
approaches to heating, ventilating and air
conditioning of buildings, innovation
sustainability in design, construction and
operation.

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