ASTM E1074-15(2020)e1
(Practice)Standard Practice for Measuring Net Benefits and Net Savings for Investments in Buildings and Building Systems
Standard Practice for Measuring Net Benefits and Net Savings for Investments in Buildings and Building Systems
SIGNIFICANCE AND USE
5.1 The NB (NS) method provides a measure of the economic performance of an investment, taking into account all relevant monetary values associated with that investment over the investor’s study period. The NB (NS) measure can be expressed in either present value or equivalent annual value terms, taking into account the time value of money.
5.2 The NB (NS) method is used to decide if a given project is cost effective and which size or design for a given purpose is most cost effective when no budget constraint exists.
5.3 The NB (NS) method can also be used to determine the most cost effective combination of projects for a limited budget; that is, the combination of projects having the greatest aggregate NB (NS) and fitting within the budget constraint.
5.4 Use the NB method when the focus is on the benefits rather than project costs.
5.5 Use the NS method when the focus in on project savings (that is, reductions in project costs).
SCOPE
1.1 This practice covers a recommended procedure for calculating and interpreting the net benefits (NB) and net savings (NS) methods in the evaluation of building designs and systems.
1.2 The values stated in inch-pound units are to be regarded as standard. The values given in parentheses are mathematical conversions to SI units that are provided for information only and are not considered standard.
1.3 This standard does not purport to address all of the safety concerns, if any, associated with its use. It is the responsibility of the user of this standard to establish appropriate safety, health, and environmental practices and determine the applicability of regulatory limitations prior to use.
1.4 This international standard was developed in accordance with internationally recognized principles on standardization established in the Decision on Principles for the Development of International Standards, Guides and Recommendations issued by the World Trade Organization Technical Barriers to Trade (TBT) Committee.
General Information
Relations
Standards Content (Sample)
This international standard was developed in accordance with internationally recognized principles on standardization established in the Decision on Principles for the
Development of International Standards, Guides and Recommendations issued by the World Trade Organization Technical Barriers to Trade (TBT) Committee.
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Designation:E1074 −15 (Reapproved 2020)
Standard Practice for
Measuring Net Benefits and Net Savings for Investments in
Buildings and Building Systems
This standard is issued under the fixed designation E1074; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision. A number in parentheses indicates the year of last reapproval. A
superscript epsilon (´) indicates an editorial change since the last revision or reapproval.
ε NOTE—Adjunct title and stock number in 2.2 were updated editorially in April 2020.
INTRODUCTION
The net benefits (NB) and net savings (NS) methods are part of a family of economic evaluation
methods that provide measures of economic performance of an investment over some period of time.
Included in this family of evaluation methods are life-cycle cost analysis, benefit-to-cost and
savings-to-investment ratios, internal rates of return, and payback analysis.
The NB method calculates the difference between discounted benefits and discounted costs as a
measure of the cost effectiveness of a project. The NS method calculates the difference between
life-cycle costs as a measure of the cost-effectiveness of a project. The NB and NS methods are
sometimescalledthenetpresentvaluemethod.TheNBandNSmethodsareusedtodecideifaproject
is cost effective (net benefits greater than zero, or net savings greater than zero), or which size, or
design, competing for a given purpose is most cost effective (the one with the greatest net benefits, or
the one with the greatest net savings).
1. Scope 2. Referenced Documents
1.1 This practice covers a recommended procedure for 2.1 ASTM Standards:
calculating and interpreting the net benefits (NB) and net E631 Terminology of Building Constructions
savings(NS)methodsintheevaluationofbuildingdesignsand E833 Terminology of Building Economics
systems. E917 Practice for Measuring Life-Cycle Costs of Buildings
and Building Systems
1.2 The values stated in inch-pound units are to be regarded
E964 Practice for Measuring Benefit-to-Cost and Savings-
as standard. The values given in parentheses are mathematical
to-Investment Ratios for Buildings and Building Systems
conversions to SI units that are provided for information only
E1057 Practice for Measuring Internal Rate of Return and
and are not considered standard.
Adjusted Internal Rate of Return for Investments in
1.3 This standard does not purport to address all of the
Buildings and Building Systems
safety concerns, if any, associated with its use. It is the
E1121 Practice for Measuring Payback for Investments in
responsibility of the user of this standard to establish appro-
Buildings and Building Systems
priate safety, health, and environmental practices and deter-
E1185 Guide for Selecting Economic Methods for Evaluat-
mine the applicability of regulatory limitations prior to use.
ing Investments in Buildings and Building Systems
1.4 This international standard was developed in accor-
E1369 Guide for Selecting Techniques for Treating Uncer-
dance with internationally recognized principles on standard-
tainty and Risk in the Economic Evaluation of Buildings
ization established in the Decision on Principles for the
and Building Systems
Development of International Standards, Guides and Recom-
E1765 Practice for Applying Analytical Hierarchy Process
mendations issued by the World Trade Organization Technical
(AHP) to Multiattribute DecisionAnalysis of Investments
Barriers to Trade (TBT) Committee.
Related to Projects, Products, and Processes
E1946 Practice for Measuring Cost Risk of Buildings and
This practice is under the jurisdiction of ASTM Committee E06 on Perfor-
mance of Buildings and is the direct responsibility of Subcommittee E06.81 on
Building Economics. For referenced ASTM standards, visit the ASTM website, www.astm.org, or
Current edition approved April 1, 2020. Published May 2020. Originally contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM
approved in 1985. Last previous edition approved in 2015 as E1074-15. DOI: Standards volume information, refer to the standard’s Document Summary page on
10.1520/E1074-15R20E01. the ASTM website.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States
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E1074−15 (2020)
Building Systems and Other Constructed Projects 6. Procedures
E2204 Guide for Summarizing the Economic Impacts of
6.1 The recommended steps for applying the NB (NS)
Building-Related Projects
method to an investment decision are summarized as follows:
2.2 ASTM Adjunct:
6.1.1 Make sure that the NB (NS) method is the appropriate
Discount Factor Tables - Adjunct to E917 Practice for
economic measure (see Guide E1185);
Measuring Life-Cycle Costs of Buildings and Building
6.1.2 Identify objectives, alternatives, and constraints;
Systems - Includes Excel and PDF Files
6.1.3 Establish assumptions;
6.1.4 Compile data;
3. Terminology
6.1.5 Convert cash flows to a common time basis (discount-
3.1 Definitions—For definitions of general terms related to
ing);
building construction used in this practice, refer to Terminol-
6.1.6 Compute NB (NS) and compare alternatives; and
ogy E631; and for general terms related to building economics,
6.1.7 Make final decision, based on NB (NS) results as well
refer to Terminology E833.
as consideration of risk and uncertainty, unquantifiable effects,
and funding constraints (if any).
4. Summary of Practice
6.2 Since the steps mentioned in 6.1.2 – 6.1.5 are treated in
4.1 This practice is organized as follows:
detail in Practice E917 and briefly in Practices E964 and
4.1.1 Section 2, Referenced Documents—Lists ASTM stan-
E1121, they are not discussed in this practice. In calculating
dards referenced in this practice.
NB (NS), these four steps should be followed exactly as
4.1.2 Section 3, Definitions—Addresses definitions of terms
described in Practice E917. The remainder of this practice
used in this practice.
focuses on the computation, analysis, and application of the
4.1.3 Section 4, Summary of Practice—Outlines the con-
NB (NS) measure. A comprehensive example of the NB
tents of the practice.
methodappliedtoabuildingeconomicsproblemisprovidedin
4.1.4 Section 5, Significance and Use—Explains the appli-
Appendix X1. A comprehensive example of the NS method
cation of the practice and how and when it should be used.
applied to a building economics problem is provided in
4.1.5 Section 6, Procedures—Summarizes the steps in mak-
Appendix X2.
ing NB (NS) analysis.
4.1.6 Section 7, Compute NB (NS)—Describes calculation 7. NB (NS) Computation
procedures for NB (NS).
7.1 Computation of NB for any given project requires the
4.1.7 Section 8, Anaylsis of NB (NS) Results and the
estimation,indollarterms,ofdifferencesbetweenbenefits,and
Decision—Discussesthedecisioncriterionandthetreatmentof
differencesbetweencosts,forthatprojectrelativetoamutually
uncertainty, risk, and unqualified effects.
exclusive alternative. Computation of NS for any given project
4.1.8 Section 9, Applications—Explains circumstances un-
requires the estimation, in dollar terms, of the difference
der which the NB (NS) method is appropriate.
between life-cycle costs for the project relative to a mutually
4.1.9 Section 10, Report—Identifies information that should
exclusive alternative. The mutually exclusive alternative may
be included in a report of a NB (NS) analysis.
be a similar design/system of a different scale, a dissimilar
design/system for the same purpose, or the do nothing case.
5. Significance and Use
Denote the alternative under consideration as A and the
j
5.1 The NB (NS) method provides a measure of the eco-
mutually exclusive alternative to be used for purposes of
nomic performance of an investment, taking into account all
comparison as A . Alternative A is typically the do nothing
k k
relevant monetary values associated with that investment over
case or the project with the lowest first cost, which may or may
the investor’s study period. The NB (NS) measure can be
not be the same project. But the analyst can choose any of the
expressed in either present value or equivalent annual value
mutually exclusive alternatives as the base case against which
terms, taking into account the time value of money.
to compare alternatives. Benefits can include (but are not
5.2 The NB (NS) method is used to decide if a given project
limited to) revenue, productivity, functionality, durability, re-
is cost effective and which size or design for a given purpose sale value, and tax advantages. Costs can include (but are not
is most cost effective when no budget constraint exists. limited to) initial investment, operation and maintenance (in-
cluding energy consumption), repair and replacements, and tax
5.3 The NB (NS) method can also be used to determine the
liabilities.
most cost effective combination of projects for a limited
budget; that is, the combination of projects having the greatest 7.2 Eq 1 is used to compute the present value of net benefits
aggregate NB (NS) and fitting within the budget constraint. (PVNB ) for the proposed project relative to its mutually
j:k
exclusive alternative.
5.4 Use the NB method when the focus is on the benefits
N
rather than project costs.
¯ t
PVNB 5 ~B 2 C !/ 11i (1)
~ !
j:k t t
(
t50
5.5 UsetheNSmethodwhenthefocusinonprojectsavings
(that is, reductions in project costs).
The NIST Building Life-Cycle Cost (BLCC) Computer Program helps users
calculate measures of worth for buildings and building components that are
Available from ASTM International Headquarters. Order Adjunct No. consistent with ASTM standards. The program is downloadable from http://
ADJE091717-EA. Original adjunct produced in 1984.Adjunct last revised in 2003. www.eere.energy.gov/femp/information/download_blcc.html.
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E1074−15 (2020)
where: an initial investment of $10 000 that yields an uneven yearly
cash flow over four years. (Implicitly, the mutually exclusive
B = dollar value of benefits in period t for the building or
t
alternative is the do nothing case.)Assuming a discount rate of
system being evaluated,A, less the counterpart benefits
j
15 %,thediscountedcashflowsyieldaPVNBof$1823.(Note
in period t for the mutually exclusive alternative against
that the sum of net cash flows, $7000, is a much larger value,
which it is being compared, A ,
k
¯
= dollar costs, including investment costs, in period t for since it fails to account for the eroding value of money over
C
t
the building or system being evaluated, A, less the
time.) The larger the PVNB for a given project, the more
j
counterpart costs in period t for the mutually exclusive
economically attractive it will be, other things being equal.
alternative against which it is being compared, A ,
k
7.8 To find the AVNB that is time equivalent to $1823, use
N = number of discounting time periods in the study period,
Eq 2. The equivalent AVNB is $639.
and
i = the discount rate per time period.
8. Analysis of NB (NS) Results and the Decision
7.3 Use Eq 2 to convert the present value of net benefits to
annualvalueterms,whereNisthenumberofyearsinthestudy 8.1 Use the results of the NB (NS) computation to rank
period and i is the discount rate.
order alternatives from highest to lowest NB (NS). The
N N alternative with the highest NB (NS) is the most cost effective.
AVNB 5 PVNB · i 11i / 11i 2 1 # (2)
@~ ~ ! ! ~~ ! !
j:k j:k
where AVNB = annual value of net benefits.
j:k
8.2 In the final investment decision, take into account not
7.4 Use Eq 3 to compute the present value of net savings
only the numerical values of NB (NS), but also uncertainty of
(PVNS ) for the proposed project, A, relative to its mutually
j:k j investment alternatives relative to the risk attitudes of the
exclusive alternative, A . The terms appearing in Eq 3 are
k investor, the availability of funding and other cash-flow
based on the life-cycle cost (LCC) method, Practice E917.
constraints, any unquantified effects attributable to the
Subtract from project costs in the year in which they occur any
alternatives, and the possibility of noneconomic objectives.
pure benefits (for example, increased rental income due to
(These topics are discussed in Section 10 of Practice E917.)
improvements) in the LCC calculation.
8.2.1 Decision-makers typically experience uncertainty
PVNS 5 LCC 2 LCC (3)
j:k k j about the correct values to use in establishing basic assump-
tions and in estimating future costs. Guide E1369 recommends
where:
techniques for treating uncertainty in parameter values in an
LCC = the life-cycle costs of the alternative under
j
economicevaluation.Italsorecommendstechniquesforevalu-
consideration, A, and
j
ating the risk that a project will have a less favorable economic
LCC = the life-cycle costs of the mutually exclusive
k
outcome than what is desired or expected. Practice E1946
alternative, A .
k
establishes a procedure for measuring cost risk for buildings
7.5 Use Eq 4 to convert the present value of net savings to
and building systems, using the Monte Carlo simulation
annualvalueterms,whereNisthenumberofyearsinthestudy
techniqueasdescribedinGuideE1369.PracticeE917provides
period and i is the discount rate.
direction on how to apply Monte Carlo simulation when
N N
AVNS 5 PVNS · i 11i / 11i 2 1 (4)
@~ ~ ! ! ~~ ! !# performing economic evaluations of alternatives designed to
j:k j:k
mitigatetheeffectsofnaturalandman-madehazardsthatoccur
where:
infrequently but have significant consequences. Practice E917
AVNS = annual value of net savings.
j:k
containsacomprehensiveexampleontheapplicationofMonte
7.6 For a given problem and data set, solutions in either
Carlo simulation in evaluating the merits of alternative risk
present value or annual value terms will be time equivalent
mitigation strategies for a prototypical data center.
values (although different in actual dollar values) and will
8.2.2 Describe any significant effects that remain unquanti-
result in the same investment or design decisions, provided
fied. Explain how these effects impact the recommended
annual values are calculated using Eq 2 for net benefits and Eq
alternative. Refer to Practice E1765 for guidance on how to
4 for net savings.
present unquantified effects along with the computed values of
7.7 Asimple application of Eq 1 is presented in Table 1 for NB (NS) or any other measures of economic performance.
TABLE 1 Calculation of Net Benefits
A
Net Cash Flow
SPV Factor
¯
Year, t Benefits, B , dollars PVNB, dollars
Costs, C , dollars
t
t ¯
for i=15 %
B −C , dollars
...
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