FTC Module 7.1 - MAKING THE BUSINESS CASE - v1.1 - DfGE

4/23/2021
MODULE 7.1 MAKING THE BUSINESS CASE V1.1 DATED: June 29, 2020
DESIGNING FOR GREATER EFFICIENCY

A Course to Design Bioclimatic and Resource-Efficient Architecture
Faculty Training Course

WITH THE SUPPORT OF
BUSINESS CASE-I | PageThis

1 course material is the property
Property of
of the International
the International Finance
Finance Corporation.
Corporation. It isreproduced
Not to be altered, not to beoraltered,
distributedreproduced or distributed without permission
without permission
DESIGNING FOR GREATER EFFICIENCY

MODULE 1 • Global impacts of design
Background and E DGE dem o • Resource efficiency – Energy, Water Scarcity and Carbon
• Calculation of resource efficiency metrics using the EDGE Tool
MODULE 2 • Passive design strategies – orientation, form, sun

Form , S kin, Clim ate (Bio- • Office case studies
Clim atic Design) • Presentation techniques
MODULE 3 • Systems for heating, cooling, ventilation

E ngineering Ar chitecture • Energy efficiency best practices
(HVAC & Contr ols) • Benchmarks and case studies
MODULE 4 • Daylighting
Lighting and Photovoltaic • Lighting systems and controls
• Renewable technologies such as photovoltaic panels
MODULE 5 • Water efficiency

Water and Mater ials • Carbon intensity of construction materials
MODULE 6 • Whole-building design techniques for efficiency

Design Critique and Concept • Critique of existing buildings
Developm ent • Group presentations and class discussion
MODULE 7 • Client and developer point of view; costs and payback

Making the Business Case • Financial resources; incentives, green mortgages and loans
• Design firm point of view; green consulting as a service
MODULE 8 • Making a compelling case for efficiency
Class Pr esentation
BUSINESS CASE-I | Page 2 Property of the International Finance Corporation. Not to be altered, reproduced or distributed without permission
MAKING THE BUSINESS CASE

Market and client perspectives; the roles of green architects
MODULE 7.1
BUSINESS CASE-I | Page 3

3 Property of the International Finance Corporation. Not to be altered, reproduced or distributed without permission
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ASSI GNMENT FROM YESTERDAY
Property of the International Finance Corporation. Not to be altered, reproduced or distributed without permission
ASSI GNMENT FROM YESTERDAY

SUGGESTIONS FOR LECTURERS

Tell the students to think about the business case they will
develop for their group design project while they are going
through the following presentation.
Which techniques and approaches will work or their client?
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CONTENT
A client’s point of view
Financial resources
UNDERSTAND THE CLIENT’S POINT OF VIEW

Why would a client want a green building? Are green buildings not more expensive to build? This is one
of several misconceptions that create a real market barrier to the demand for green buildings.
• Lack of awareness of benefits

• Over-estimation of costs
• Complexity and cost of doing a cost-
benefit analysis for a specific building
• The fear that a green building’s superior
performance will not be recognized by
buyers unless the developer invests in a
costly and time-consuming certification
process
• Difficulty for property buyers to assess
efficiency of properties.
• Developers find it difficult to capitalize
investments in green measures.
• Developer’s inability to transfer additional
cost to total price of properties
WHAT DO YOU THINK ARE THE TOP 4 BARRIERS

TO MARKET ADOPTION OF GREEN BUILDINGS
IN A CLIENTS’ MIND?
Lack of
market
demand
Green
Buildings are Lack of public
for high-end awareness
projects only
MARKET
BARRIERS
Lack of
Unable to
political
prove
support or
business case
incentives
Higher first
costs
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Discuss with your students what the biggest barriers for green
building adoption in your country are.
CLIENTS HAVE A LOT ON THEIR MIND

There are several market barriers besides the
incorrect assumption of higher first costs. Part of the
job of a trained green buildings specialist is to
overcome these barriers, some perceived and some
real, and help a client see the potential benefits of
building green.
Trends between 2012 and 2018 show that

perceptions about first costs are improving.
Source: Smart Market Report: World Green Building Trends 2018, Dodge
Data & Analytics
HOW CAN WE BREAK THE CYCLE OF BLAME?

Why aren’t green buildings more mainstream? Each market player has preconceived notions that
need to be addressed. A good green consultant can help address concerns with persuasive data
and compelling presentations.
HOME OWNERS
“We would like to
have an energy
efficient home, but
there aren’t any”
BUILDERS
INVESTORS
“We can build
Cycle energy efficient
“We would fund
energy efficient of homes but
buildings, but there blame developers don’t
is not demand for ask for them”
them”
DEVELOPERS
“We would ask for
energy efficient
homes, but
investors won’t pay
for them”
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Ask the students what they think is an average % incremental
cost (additional cost vs. typical building) of green buildings in
your country
COST IS AN IMPORTANT FACTOR

Perception of costs and affordability of green buildings are much higher than reality
given falling technology costs.
Consider which green ideas will cost more, and which are cost-effective
USE TOOLS TO EVALUATE COST BENEFIT TO CLIENTS

EDGE is an example of a tool that provides not just energy savings but also cost estimates
Ashish Jakhanwala,
CEO, SAMHI Hotels, India
“In the hotel business, you are fighting for

that
that 2% of profitability. That is why forlast
us,
EDGE is a tool for survival.”
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COST-BENEFIT RATIO IS FIRMLY ON THE SIDE OF BENEFITS

Go broader when making a business case. Look at the different costs and benefits, not just first costs.
Increasingly
CONSTRUCTION
marginal
HIGHER
COSTS:
1-3% of
construction
Operational savings –
as little as 1yr payback
period
BENEFITS:
Resale value
Cheaper debt
GOOD DATA EXISTS TO PROVE THE BUSINESS CASE

Global and local data exists, as well as periodic news and articles that help clients see the benefits of
building green. It is a good idea to save them for later use.
A global green building survey carried out by Dodge Data Analytics in 2018 found that several market drivers
exist for businesses to invest in green buildings.
EXAMPLE
Source: Smart Market Report: World Green Building Trends 2018, Dodge Data Analytics (formerly McGraw Hill Construction)
A BRIEF, COMPELLING PRESENTATION CAN HELP

This is an example of a list of benefits to make a strong business case to a developer. A real estate client
has to be able to visualize the monetary and other benefits of a green building.
EXAMPLE
MINIMIZE COSTS
• Incorporate green early into design and keep costs to 1-3% extra at most.
• Most passive green measures cost nothing and can even improve construction for net positive
benefit.
INCENTIVES
• Projects can enjoy local incentive schemes for sustainability.
• Raise funds on international markets quicker or cheaper under green brand.
QUICKER SALE OR RENTAL

• IFC’s clients are using green to differentiate their offering in the market.
• Data shows quicker sales.
HIGHER PRICE
• Home buyers are willing to pay more for efficient homes with lower bills.
• IFC is assisting with green mortgages that minimize upfront cost to buyer.
LOWER DEFAULT RATE

• IFC can connect home buyers to green mortgages to create synergies with financiers,
who will enjoy stronger portfolios.
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GRAPHICS CAN BE A STRONG MEDIUM

For example, this graphic shows the average benefits for buildings that have been certified to a
green building standard (as per a particular study).
EXAMPLE
Source: Triple Pundit, 2016
CASE STUDIES ARE ANOTHER COMPELLING MEDIUM

Take the time to develop case studies for the features you want to highlight.
CASE STUDY
KESAR CITY, INDIA
Lower maintenance and utility costs
Kesar City was the fastest to sell among 14
projects which went to market in 2015 in the
Maraiya region despite being the largest. Several
projects in the vicinity remain unsold.
EXAMPLE
Actual saving per measure (Rupees)
Savings Impact of Green Measures:
23% Lower Energy Bill
24% Lower Water Bill
71% Less Energy In Materials
CREATIVE RESOURCES CAN BE USED

Create a portfolio of resources in different mediums such as this video from EDGE that show tangible value.
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WHAT MAKES SENSE FROM A CLIENT’S POINT OF VIEW?
Target the data and presentations to the particular audience. For example, when talking to home
owners, focus on what they stand to gain from building green.
Developers use green to differentiate
Banks target green market with new products

Opportunities
for green
building for
everyone
Owners recognize operating benefits
Governments offer an enabling environment
Business case for

home buyers
HOMEOWNERS BENEFIT DIRECTLY AND LONG-TERM
Homeowners can save on bills. In countries with power cuts, homeowners in well-designed green
homes can stay comfortable longer even when there is a power cut.
CHALLENGES OPPORTUNITIES
• Family spends 11% of income on utilities • Design green at low cost
• Weekly power cuts, water shortage • Lower home owner’s utility bills by 20%
• Few developers constructing green homes • Lowered electricity needs for the city
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UTILITY BILL DATA CAN BE USED AS EVIDENCE

Present billing data from homes in the neighboring areas to make a compelling case. This graph
shows sample bills from low-income homes over the course of a year. Each line represents the
monthly bills of a different home. On average, the utility bills track the outside temperature,
highlighting the impact of the climate on utility bills.
3,500
Temperature (°C)
Ravindra
3,000
Shivaji
HOT DRY SUMMER MONSOONS WARM HUMID
Vijay
2,500 Goraknath
Sanjay
Rupees per month
Hirabai
2,000 Average
38
1,500 37
35
34
1,000 31 31
30 30
28 28 28 28
500
BASE LOAD
-
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
GREEN HOMES PROVIDE MANY BENEFITS

Make the case from many angles; different angles may appeal to different home buyers. Comfort,
efficiency, resilience, and higher resale values, are all valid outcomes of building green.
COMFORTABLE HOMES EFFICIENT HOMES RESILIENT HOMES

“my family is healthier and more productive” “a penny saved is a penny earned” “my house earns a living”
Adding white reflective paint on roof/walls, Topping the comfort spec with energy efficient ceiling Installing a solar PVs for a cost of ~Rs.110,000 in
external shading, roof and wall insulation and fans and refrigerators and a solar hot-water system addition to the above (payback of ~9years). roof-top
better placement of windows can improve thermal could reduce the current bill by a third (Rs 6,300/year). PVs will make his family resilient to the power cuts,
comfort by 70% and lower the use of ceiling fans For new homes this may only have an incremental cost rising utility tariffs and not have to pay any
and therefore save money (~15% less in bills). of ~25,000 Rupees (4 years payback)*. electricity bills for 20-25 years.
*For existing homes, the cost of replacing fans and refrigerators may be a lot higher.
Business case for

Developers
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IT’S ALL ABOUT THE VALUE PROPOSITION

Consider what will appeal to speculative developers (offices and homes)?
“For a small investment, achieve EDGE certification

and increase the marketability of your building.”
DEVELOPERS CARE ABOUT PRICES AND SALES

Recognize that green homes have been shown to command higher sale prices and sell quicker. In
addition, green homes have lower bills and higher resale values, which are attractive to potential
home owners that developers can mention in their marketing materials.
BUILDERS BUYERS BANKS
Higher Resale Value

UK: +10%-14%9
Higher Sale Price Quicker Sale Lower Utility Bills Lower Default Rate
Portland: 8% more1 Netherlands: +3.7%10
Portland: -18 days4 USA: 15% less6 USA: 33% less8
South Africa California: +8.7% 11
Seattle: 9% more2 Seattle: 4 times5 up to 40% less
Singapore: 4% more3 Switzerland: .5%- 7%12
CAPEX COULD BE LOWER THOUGH PASSIVE DESIGN.
Consider how you can help reduce capital costs of construction
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SAVINGS FROM FASTER CONSTRUCTION AND SALES

Consider alternative construction methods that save construction time (such as precast
insulated panels). Faster construction and faster sales times can greatly improve a developer’s
cash flow, compensating for incremental costs (if any) of constructing green buildings.
VBHC, INDIA
VBHC’s EDGE homes costed 1% more. By
reducing construction duration by 66%
they have in lowering working capital
requirements.
The improving cash-cycle more than

makes up the incremental capital cost
green features.
Concrete formwork technology allows
rapid construction and also has lower
embodied impact than bricks.
Concrete formwork technology allows rapid construction and

also has lower embodied impact than bricks
COST STUDIES CAN BE USED TO MAKE THE CASE
Use cost studies to convince developers. This is an example from South Africa. The cost to the developer
was 1.5% of average, but he could demonstrate to potential buyers that they would save an average of
20% on energy and water bills, improving his sales cycle.
Cost study by largest housing developer

1.5% higher cost for EDGE homes
Type Energy Water Materials Incremental cost /unit
1 1 bed 1 bath 34 m2 50 units 10 measures: 4 measures: 5 measures:

USD 500

USD 560

USD 450
4 2 bed 1 bath 66 m2 150 units 6 measures 4 measures: 4 measures:

USD 370
5 2 bed 1 bath 55 m2 290 units 7 measures: 3 measures: 5 measures: USD 900
20% average energy/ water savings
Source: International
BUSINESS CASE-I | Housing
Page 32Solutions 2017 Property of the International Finance Corporation. Not to be altered, reproduced or distributed without permission
NEW BUSINESS MODELS TO GET PAST FIRST COSTS
Explore new business models to get past the hurdle of first costs. This is an example of an innovative
approach – the developer installed solar PV panels for no upfront costs to the buyer and the
homeowners could enjoy lower electricity rates through the PV lease-back program
CASE STUDY
Via Verde, Philippines
PV lease-back program.
In Philippines, Imperial homes install 500 watts roof top
solar photovoltaics panels on every unit for free to allow
buyers to enjoy lower electricity rate through the PV
lease-back program.
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CONTENT
A client’s point of view
Financial resources

If you (the lecturer) are familiar with any green financing options
in your country, please mention in the class.
FINANCIAL INSTITUTIONS ARE INVESTING IN GREEN

BUILDING PORTFOLIOS
Consider if your client may have access to better financing if they build green. Banks have incentive to
invest in green building portfolios to improve their ratings. They may offer better loan terms to a
green building. Some of these banks even hire green building consultants to help review applications.
New offer
for current GREEN BONDS
clients
Reach out
Stronger
to new
portfolio GREEN MORTGAGES
clients
Sustainability GREEN DEVELOPER FINANCE

Cross sell
leadership
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GREEN MORTGAGES CAN HELP PAY FOR GREEN

MEASURES
Explore if the client has access to a green financing or similar instrument to pay for some measures.
Green Mortgage Example

When Devika Sharma bought a home, her lender made it possible to add solar hot-water system by
adding $500 to their loan – bumping it from $32,000 to $32,500. That raised their monthly
mortgage by $4, but their utility bills dropped by $10 monthly.
Energy saving $10/month
Additional EMI $4/month
Net saving during $6/month
the loan period
GOVERNMENTS ALSO HAVE INCENTIVES

Explore if the project can avail of government incentives. These can be national, state, or local/
municipal incentives.
Tax credits
Rebate programs
Higher allowance for built area
Expedited permitting
Discounted applications

If you (the lecturer) are familiar with any government incentives

in your country, please mention in the class.
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WHAT WAS THE KEY LEARNING FOR YOU THIS SESSI ON?
Please describe in 1-2 sentences
A pre-recorded video presentation of today’s material is now available

on Google Classroom (in Classwork)
14

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4/23/2021

DESIGNING FOR GREATER EFFICIENCY

Faculty Training Course

BUSINESS CASE-I | PageThis

DESIGNING FOR GREATER EFFICIENCY

MODULE 2 • Passive design strategies – orientation, form, sun

MODULE 3 • Systems for heating, cooling, ventilation

MODULE 5 • Water efficiency

MODULE 6 • Whole-building design techniques for efficiency

MODULE 7 • Client and developer point of view; costs and payback

MAKING THE BUSINESS CASE

BUSINESS CASE-I | Page 3

ASSI GNMENT FROM YESTERDAY

ASSI GNMENT FROM YESTERDAY

SUGGESTIONS FOR LECTURERS

Which techniques and approaches will work or their client?

A client’s point of view

UNDERSTAND THE CLIENT’S POINT OF VIEW

• Lack of awareness of benefits

WHAT DO YOU THINK ARE THE TOP 4 BARRIERS

SUGGESTIONS FOR LECTURERS

CLIENTS HAVE A LOT ON THEIR MIND

Trends between 2012 and 2018 show that

HOW CAN WE BREAK THE CYCLE OF BLAME?

SUGGESTIONS FOR LECTURERS

COST IS AN IMPORTANT FACTOR

USE TOOLS TO EVALUATE COST BENEFIT TO CLIENTS

“In the hotel business, you are fighting for

COST-BENEFIT RATIO IS FIRMLY ON THE SIDE OF BENEFITS

GOOD DATA EXISTS TO PROVE THE BUSINESS CASE

A BRIEF, COMPELLING PRESENTATION CAN HELP

QUICKER SALE OR RENTAL

LOWER DEFAULT RATE

GRAPHICS CAN BE A STRONG MEDIUM

Source: Triple Pundit, 2016

CASE STUDIES ARE ANOTHER COMPELLING MEDIUM

23% Lower Energy Bill

24% Lower Water Bill

71% Less Energy In Materials

CREATIVE RESOURCES CAN BE USED

WHAT MAKES SENSE FROM A CLIENT’S POINT OF VIEW?

Developers use green to differentiate

Banks target green market with new products

Governments offer an enabling environment

Business case for

HOMEOWNERS BENEFIT DIRECTLY AND LONG-TERM

UTILITY BILL DATA CAN BE USED AS EVIDENCE

GREEN HOMES PROVIDE MANY BENEFITS

COMFORTABLE HOMES EFFICIENT HOMES RESILIENT HOMES

Business case for

IT’S ALL ABOUT THE VALUE PROPOSITION

“For a small investment, achieve EDGE certification

DEVELOPERS CARE ABOUT PRICES AND SALES

BUILDERS BUYERS BANKS

Higher Resale Value

CAPEX COULD BE LOWER THOUGH PASSIVE DESIGN.

Consider how you can help reduce capital costs of construction

SAVINGS FROM FASTER CONSTRUCTION AND SALES

The improving cash-cycle more than

Concrete formwork technology allows rapid construction and

COST STUDIES CAN BE USED TO MAKE THE CASE

Cost study by largest housing developer

Type Energy Water Materials Incremental cost /unit