The economic benefits of green buildings: a comprehensive case study

Engineering Economist, Fall, 2006 by Robert Ries, Melissa M. Bilec, Nuri Mehmet Gokhan, Kim LaScola Needy

INTRODUCTION

In building design and construction, both green building and standard construction techniques are considered for many new building projects. Final decisions are routinely made based solely on schedules and budgets, and the long-term effects are often overlooked. The outcomes of these quick decisions can lead to short-term benefits; however, a careful comparison between the added first costs of construction against the recurring, long-term associated benefits and cost savings are needed to conduct a more thorough analysis. Although several industry and research groups are attempting to quantify the benefits of green building construction--significant cost savings by gains in employee productivity, reduction in health and safety costs, and savings from energy, maintenance, and operational costs--the need for more comprehensive data is largely acknowledged (Fowler, 2004). Many key business sectors, such as developers, bankers, and appraisers, are anxious to structurally and monetarily understand and use green building metrics to make the case for greening the market and integrating the benefits of green design into new and existing facilities. The assumption is that the benefits largely exceed any added initial cost of the green building. This research investigates the relationship between the above variables and green building features to further contribute to the development of green building metrics. The challenge of this research is statistically discerning the difference between green building attributes and normal changes to business operations in a non-controlled environment.

The businesses participating in this study are interested in understanding the linkages between green building features and business performance, the return on investment of their current facility, and the key attributes that should be pursued in green design of future facilities or expansions. The research in this article collects quantitative data and validates the data by conducting a self-reporting survey along with interviewing management in order to analyze the hypothesized relationship. The project, which started in May 2004, initially focused on developing relationships with local businesses, as involvement in this research requires a time commitment in a lean business climate. Data from Castcon Stone, a precast manufacturing company, are presented in this article. Additional data are currently being collected from other business research partners.

This article begins by discussing the benefits of green building construction, followed by the approach and methodology. It then examines the case study conducted at Castcon Stone including an overview of the company, its new green facility, a description of the research protocol, and final results. The article concludes with a discussion of the future direction for this research.

LITERATURE REVIEW

Studies report savings associated with green building including gains in employee productivity, reduction in health and safety costs, and savings from energy, maintenance, and operational costs. Productivity is defined as the output of any process, per unit of input, so it directly relates to the performance of the process elements, including the workers. A number of articles and case studies show a strong positive correlation between the work performance of employees and the building in which the process takes place. For example, Romm and Browning (1998) reported eight case studies that show up to a 16% improvement in productivity between the employees in existing facilities and the employees in remodeled or new facilities designed according to green building principles. Heerwagen (2001) found significant productivity gains and reported that the workers' "overall [positive] feeling about the environment" increased by 60%. Kats (2003) states that various study results show significant productivity increases both in commercial and educational areas. Wyon (1996) estimated that providing temperature control of 3[degrees]C to workers would increase work performance by 3-7%. Fisk (2002) found significant estimated potential productivity gains from improvements in indoor environments in the United States ranging from $1-160 billion given reductions in health and increased performance. Table 1 shows the estimated potential productivity gains from improvements in indoor environments in the United States.

Employee salaries constitute the major ratio of overall office buildings' expenditures. According to Kats (2003), employee cost is 89% of the total building costs and it is roughly 10 times the property related costs. Table 2 depicts the typical distribution of building costs. Therefore, a 1% increase in employee productivity would equal about a 15% decrease in property costs since the share of the employee costs (89%) is almost 15 times larger than the share of property costs (6%).

Health-related problems constitute the major portion of reasons that lead to lower productivity. Health problems affect the productivity of employees directly in the work area or indirectly by causing absenteeism. Direct effects of health problems on productivity can be identified as employee discomfort. For example, allergies, sneezing, drowsiness, feeling tired, and similar symptoms might be related to health problems caused by low indoor environmental quality (IEQ). All these symptoms cause discomfort and may reduce productivity. As described above, Fisk (2002) reported potential productivity loss due to these kinds of health problems. Absenteeism is an indirect effect of health problems on worker productivity. Absenteeism due to health problems is called "sick leave" in the literature, meaning that employees do not show up or leave work early because of a particular health problem. Studies show that sick leave is one of the primary sources of low productivity.