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How to estimate the costs of a smart building project

Oct. 27, 2022
Though money is often the first question owners ask when considering a technology overhaul, data collection and stakeholder alignment will lead to a more accurate and useful result, says Buildings IOT chief services officer Gina Elliott.

Asking “How much does it cost to make a building smart?” is as vague as asking “How much does it cost to buy a car?” To estimate the investment required for a smart building project—retrofit or new construction—a building owner must ask several more meaningful questions first. These questions, listed below, will drive the change—and potential costs—associated with smart building technologies:

  1. Is the building’s equipment old and in need of updating or replacement?
  2. Does the building have high energy or maintenance costs that could be lowered?
  3. Do new local, municipal, or industry regulations have to be met, such as those requiring reporting?
  4. Are newer buildings in the area with better technology attracting your tenants away?

Answering “yes” to all these questions still might not justify the next step in costing out the hardware, software, and other elements to make the building smart. Refreshing the definition of “smart building” might help.

What makes a building smart?

Understanding how much building owners and stakeholders should pay to make a building smart requires a thorough understanding of what a smart building is. A smart building contains the infrastructure to support the development of multiple technologies and applications that interoperate to provide efficient utilization and optimization of facility, energy, and IT systems.

Many people think of a smart building as the most cutting-edge technology. In reality, a smart building is about having the ability to adopt multiple categories and types of disparate technology easily and fluidly.

Assembling the dream team

Next in estimating the costs of a smart building: an owner or operator needs to gather stakeholders in the same room and ask as many questions as possible about what they expect from the smart building. At minimum, these stakeholders should include facility managers, sustainability personnel, and IT leaders.

The charrette should focus on goals, strategies, and design solutions utilizing IoT, open architecture, and cloud-based technologies. The desired outcome is to collectively establish meaningful goals and measurable objectives and then outline the process by which to achieve them.

Questions to consider in this initial stage include:

  • What are the project goals and objectives? Potential answers include factors as operations; energy, carbon, and sustainability; mandates and regulations; and user needs.
  • What are specific concerns and pain points? Examples might include energy or equipment.
  • What are the priorities and order of importance? These might include an updated building automation system (BAS), energy reduction, ESG initiatives, a healthy tenant environment, or an increase in tenant applications. A weighted scorecard can help prioritize the needs with user participation.
  • What is the project timeline?
  • What are the project metrics? These might include savings, ROI, benchmarks, and KPIs.
  • What internal processes would need to change?
  • What technologies have stakeholders used in the past? What aspects provided value or were not useful?

Stakeholders should assemble a wish list of items that they think they need. Budget, priorities, and timeline will dictate what makes the cut.

For existing buildings, owners and operators need to look at the process in a phased, programmatic way. Oftentimes, they develop their wish list, bundle it together, put out a bid, and two years later, not get what they asked for. This happens when teams have underestimated the complexity of the endeavor and priorities are not in sync.

Requests for proposal and tendering are outdated approaches. The result will be a “Frankensteined” system at an inflated cost.

A better way to retrofit a building starts with knowing what data facility operators and sustainability managers have available that will enable them to plan toward their goals. An inexpensive but invaluable tactic is to collect and analyze the project data that is already on hand. They will then need to normalize the multisystem data and identify gaps, such as connectivity, availability of point data, security issues, and outdated firmware.

Next, operators and managers should apply the often-underutilized application for fault detection and diagnosis (FDD). A thorough FDD application will pinpoint operation, optimization, comfort, and energy issues. This should be the starting point for determining priorities.

Identify the components of cost

Now that building owners and operators have their stakeholders, their wish list, and an accurate assessment of the actual state of building systems, the journey will become much easier. They can begin developing their budget, timeline, and priorities, which will likely include hardware and software, changes in existing workflows, consolidation of ancillary systems, and subject matter expertise to augment the stakeholder team.

Additional questions that stakeholders should consider in the development of their building retrofit program include the following:

  • Does the building owner want tenants and their occupants to manage their own space? That is, how do they want to split the OT and IT responsibilities between the building owner and the tenant?
  • What type(s) of vendors does an owner or operator need? These could include a master systems integrator, OT consultant, owner’s rep, and data scientist or analyst.
  • What type of support does the owner or operator need from those vendors?
  • How much infrastructure is required? What changes in infrastructure will be necessary to accommodate new vendors or upgrades to equipment or systems?
  • What data do owners want tracked and reported?
  • Who will be tracking, managing, and reporting the data?
  • How will a vendor or owner ensure consistency of data and reporting among cross-functional groups?
  • How much training of existing building management personnel will be needed for these new building components?
  • How long will the transition period take? Is new staff with different skill sets needed?

These questions are not easy to answer. The acquisition of smart building technology is often seen as the biggest cost to a smart building. However, if done correctly, the return and payback are justifiable. As such, performing as much analysis as possible—from the data collected earlier—is essential. Building a phased approach to your transformation makes it manageable.

Invest in both people and the future

A house is often a family’s largest appreciating asset. A building serves the same purpose for an owner or a real estate investment trust, albeit on a different scale. A family upgrades their home not only for their enjoyment and comfort, but also to increase their property’s overall value.

Similarly, smart building upgrades will pay off for a commercial owner via new or different types of tenants, higher rents, and higher asset appreciation when transferring ownership. A small building occupied with even a half-dozen businesses will need more technology to manage energy, expenses, and expectations as the needs of occupants, workers, and consumers change.

By obtaining feedback from stakeholders, knowing existing system conditions, and developing a thorough program, owners can make their buildings smart efficiently and cost-effectively.

And how much will that smart building cost? The answer will vary as widely as the costs between a standard compact car and a luxury SUV with all the bells and whistles.

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About the Author

Gina Elliott

Gina Elliott is chief services officer at Buildings IOT, where she oversees the customer onboarding, digital services, and customer success. Gina has held positions with Schneider Electric, EasyIO, and Switch Automation. She has been recognized in the industry as a Person of the Year nominee (2017), 100 People You Should Know, and Women of the Year. She was a 2018 nominee for The Power 100: The Most Powerful Women of the Channel and a 2019 winner of ControlTrend's Small Business Executive of the Year.

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