Pattern Recognition: Decision-making and Cost Management

Patterns and pattern recognition are, for me, one of the areas of least expertise and greatest importance in sustainability. And so this post has two functions: my attempts to practice pattern recognition, and then perhaps to offer some insight into patterns I have observed in successful green building projects over my (relatively short) career. The key areas where I'll try and identify patterns are decision-making and cost management.

I am incredibly fortunate to have begun my career just as the revolution of green buildings was starting to sweep Australia, and then to transfer to SA again, just as it was taking off here. I have worked through two intense learning curves, both my own and two industries', and this experience has allowed me to engage with the design process of close to 100 urban development and building projects with a sustainability agenda in over 15 countries. I would like to explore some of the patterns; both good and bad; that I have observed on these projects.

Decision-making

Decision-making is, for me, one of the most interesting and important topics when it comes to sustainable design. On any project, there comes a point in time around the design table when the direction of the project is on a knife-edge; the client must weigh up the options put in front of her (or him), judge the advice of her professional team (architects, engineers, quantity surveyors etc) and make a clear decision on the direction of the project from that moment forward. The earlier in the process that these moments occur, typically the bigger the impact that they have - for good or ill.

These points are also revealing as they often show which decisions are taken for granted, and which require careful deliberation. A common decision early on projects is whether or not to "go green". This is a pattern which defines the progress of a project from the outset - even when the decision is 'yes', it frames any consideration of environmental or social initiatives as add-ons. Conversely, if that decision is never taken, and ESG (environmental, social and governance) issues are considered core project attributes, then it builds a base for future design decision-making on more solid ground in terms of sustainability.

In most cases, external drivers are to thank for sustainability being an assumption, not a decision. The biggest project I worked on in Australia, in the Melbourne Docklands, had a planning requirement for design, as-built and operational energy and green building certification. There was never a decision, but rather an assumption that these were core requirements. However, the most exciting projects are those where the assumption of sustainability is in the heart of the client and team - where they internalise the need to build functional communities in the same way that the priority of profit is internalised on most commercial projects.

The projects I have encountered with a core purpose of social, environmental and financial performance have typically been those which have run the smoothest; much more so than those who have added sustainability onto a conventional development structure.

Clients who start projects with an integrated sustainability vision entrenched from the start allow effective decision-making with respect to sustainability. Clients who view sustainability as an overhead, bolted onto a conventional design paradigm have difficulty making effective decisions with respect to sustainability.

One of the dominant patterns in sustainable design decision-making is the question: "How much is it going to cost?" - this question usually follows closely on the decision of whether or not to "go green". The question of capital cost (capex) is important, money is our dominant assessment of value, and a bird in the hand is always worth two in the bush: cash is typically king.

However, in my experience, this is only half the story as most property is seen as an investment, not just a cost. An investment view of buildings introduces a life-cycle element into the value proposition which should also be reflected in decision-making.

Projects that that are driven by purely capex-focused decision-making often lose many of the attributes that would contribute to value over the life of the asset resulting in a race to the bottom; while projects that start with a picture of life-cycle value typically achieve that value within the confines of their (better-defined) cost plans.

Another dominant pattern that I have seen drive decision-making is the balance between regulation and aspiration, or how much carrot and how much stick?

Whether the stick is felt as minimum regulatory compliance or minimum Green Star points is largely irrelevant. Projects which seek to do the minimum to get a label seldom excel, while projects aiming to maximise value can always show how the minimum has been achieved and exceeded.

Examples of the carrot often involve performance-based incentives, either intrinsic to the project (improved value) or external (rebates or performance targets). Good carrots respond to the performance of the whole, and allow multiple paths to achieving it.

This difference between designing to checklists and designing to performance is particularly noticeable in the building design process, where multiple complex design decisions all affect environmental performance. Unfortunately, most green building certification tools (including Green Star) are premised on checklists, not broad performance.

Complex decision-making is severely hampered in a compliance mindset as the individual impact of each element must be assessed and compared; but is relatively easy in a value-seeking mindset, where the outcome of the whole is paramount.

Cost control

While cost control is an important contributor to decision-making, as noted above, it is also an area where successful patterns have been established in its own right. All successful projects (conventional and "green") rely on excellent cost control, but projects which deliver real value require a deep understanding of how costs, investment and value are linked over the life of a project.

The status quo on building projects for cost control (as I understand it - and welcome an further clarity or discussion) is that a quantity surveyor undertakes a feasibility study on the basis of the market rules of thumb and produces a cost plan for a building that will deliver a particular yield. Unfortunately, a dominant pattern in commercial projects, is that once the original feasibility has been established the cost plan becomes law and no further investment in quality (beyond the original assumptions) can be motivated.

This reframes the idea of investment as simply an idea of cost reduction on many projects, which in turn results in a race to the bottom - a concept borne out by many buildings that populate our cities. Moving to life-cycle costing (taking operational performance into account) is a good first step, and ultimately life-cycle value management (taking the whole of life impacts of the project into account) offers a possible alternative to current cost management processes.

Further to these, the value of sustainability is currently poorly understood, as are the external long-term costs of environmental degradation. Moving away from simple cost management (which ignores many externalities) to value management (which should take these external, but real costs into account) may improve our understanding, our buildings and the sustainability of our cities.

Good cost control does not simply mean matching a design to a budget. Rather, it implies a live assessment of project value and projected performance that allows flexibility in design and, more importantly, is flexible itself to best reflect the value that is brought forward through design.

One of the terms that has emerged on projects, especially those that view Green Star certification as an important, but non-core initiative is the Green Budget - the extra-over spend to achieve a green certification. While this appears, in most circumstances, to be inevitable, it is rather in conflict with the assertion that sustainable design is tran-disciplinary in nature, and real environmental performance comes from the combination of building systems, not any single initiative.

The discretising of cost premiums may be useful to clients in one sense for allowing the cost-benefit of any single system to be established. It also lends itself to the tick-box approach driven by green building certification tools like Green Star. In fact the capital premium for certified buildings has formed the basis of most of the discussion on Green Star, not the improvement in environmental performance. Most consultants, myself included, have adopted this approach based on how closely it works with the green building certification tools that underpin much of our business.

So, for the most part, green budgets will form a core part of sustainable design. However, if our decision-making tools can be developed to reference real value from multiple systems, could our cost control of those systems not also develop holistic strategies to match. When Bill Reed speaks of integrative design (see http://www.integrativedesign.net/), he talks of projects which have moved beyond discrete green budgets and into a realm where holistic, whole system design is partnered with cost savings and improved value. I believe that our pursuit of green budgets is not a result of sustainability being considered expensive, but rather one of the causes.

A holistic approach to cost control in partnership with design can deliver better value than a discretised green budget.

Finally, on the topic of cost control, is an approach to value engineering. You may have detected a critical tone towards green building certification tools like Green Star, however it is in the process of value engineering that they do play an important role.

The thresholds of different levels of certification (4 star, 5 star etc) change the dynamic of marginal value and marginal cost for initiatives intended to improve the environmental performance of a building - the initiative which takes you from 44 to 45 points may ordinarily have been excluded during VE on the basis of its discrete cost, but is now retained as it is critical to realising the marketing value of certification. While this is still in the context of viewing sustainability as an overhead, it is still an important acknowledgment of the progress that green building have made.

Current building assessment tools are designed effectively for the current property industry culture of value engineering. New tools may be necessary as value is more broadly (accurately) defined.

Summary

So, where does this leave us? A brief recap of the italicised points:

Projects that that are driven by purely capex-focused decision-making often lose many of the attributes that would contribute to value over the life of the asset resulting in a race to the bottom; while projects that start with a picture of life-cycle value typically achieve that value within the confines of their (better-defined) cost plans.

Complex decision-making is severely hampered in a compliance mindset as the individual impact of each element must be assessed and compared; but is relatively easy in a value-seeking mindset, where the outcome of the whole is paramount.

Good cost control does not simply mean matching a design to a budget. Rather, it implies a live assessment of project value and projected performance that allows flexibility in design and, more importantly, is flexible itself to best reflect the value that is brought forward through design.

A holistic approach to cost control in partnership with design can deliver better value than a discretised green budget.

Current building assessment tools are designed effectively for the current property industry culture of value engineering. New tools may be necessary as value is more broadly (accurately) defined.

For me, the core patterns that begin to emerge relate primarily to three things:

1. How a project is envisioned from its earliest stages, dtermines the outlook on all future decisions.

2. Our current definition of value in the context of sustainability could do with some work; to move beyond cash and into a broader understanding of value to society.

3. Looking at whole systems, and not just at the parts, allows more effective decision-making and provides better value projects.

So, where to next?

Well, I'd like to see a concerted effort to extract deep patterns from green buildings globally. Projects that have excelled and exceeded expectations as well as those that haven't.

I also want to explore how inspiration affects project teams as a driver for value.

But more on that in later posts.