TCO and How It Affects the Future of Construction
Total Cost of Ownership (TCO) is a concept that has been around for decades, but with the rapid changes sweeping through the world, driven by major international situations such as climate change and the Coronavirus pandemic, it has become something that is growing in focus. How does TCO affect you, in your construction business, and should you be giving it more attention?
TCO in brief
The concept of total cost of ownership is simple; it looks at the impact of a building in terms of its lifetime cost to the owner, rather than the more basic expense of initial construction. TCO is a tool to take a broader overview of a project, helping make long-term decisions that are financially superior to on-paper ‘better’ short-term ones.
One example of TCO in force is in choosing the materials for construction. Where one material may be cheaper to put in place, if it is less durable, over time it will require greater maintenance and will need replacement earlier.
Many of the basic concepts of TCO we do naturally and call it common sense, but with a clear plan to sophistically break down every aspect of a building and see it in this light, TCO becomes far more, turning a basic concept into a comprehensive accounting methodology.
Total cost of ownership in construction
When looking at TCO in terms of building construction, it is clear that there are a number of factors that must be considered beyond the simple cost of construction. These include:
- upgrading and replacing energy, utility and safety systems;
- continual maintenance of the building (interior and exterior), and the replacement of materials;
- updates to design and functionality;
- cost of recapitalisation.
More than this, however, and one of the driving forces behind a current trend for companies to consider TCO, is the need to consider the building in terms of its environmental impact. Here, ‘cost’ stops being a purely financial term, but extends to mean ‘cost to the planet’. Factors such as transportation used during the construction and maintenance of the building, or the energy efficiency of the utility systems in place become major development considerations.
Customer sophistication and adherence to TCO principles
Recent years have shown a significant increase in investment from private equity firms and institutional investors in international infrastructure investment. This brings with it a greater level of experience in the people making decisions, meaning that it is far more likely that any large-scale building project has multiple experts in the decision-making chain who are well versed in the concepts of TCO.
In short, this means that as time goes on, more and more construction projects will be planned with TCO at the forefront.
As contractors in the sector, it is key to have a developed understanding of the principles and be willing to work and provide expertise and advice with them in mind.
How software plays its part with TCO
It would be impossible to accurately apply total cost of ownership concepts without sophisticated software alongside – not only that, but dedicated software also provides the solutions to many of the problems flagged by a TCO approach.
One of the key components is BIM (Building Information Modelling). Using dedicated software, a virtual, digital model of the project can be developed in full before the first brick is laid.
BIM is often seen as a way to look at the overall end look of a building, helpful in determining plans and infrastructure, but it can also be utilised to allow the architects and developers experience a full simulation of the building, which can then be used to make predictions regarding material lifespan and other factors.
Smart components and integration with the Internet of Things (IoT) is another way in which technology and software is helping, providing opportunities for many building functions to become automated and data-driven. Combined with advanced management software, information from IoT devices can reduce both maintenance and operational costs during the lifetime of the building.
Estimating and take-off software from Ensign also plays its part. With our comprehensive database and reporting capabilities, our suite of tools provides everything needed to help build fully detailed tenders, explaining in-depth the materials selected and their impact on the building or infrastructure longevity.
Future-proofing your business with an understanding of TCO
Construction work is one of the world’s oldest industries, with thousands of years of development to get us to where we are today, however, it is still easy to become complacent in terms of our own processes. Any successful business needs to know when to update its practices and keep up with current trends. As more and more developers move to working with TCO at the centre of their building model, it is imperative that the contractors they employ are fully on board. Even more, a company that shows a full understanding of the principles is more likely to win those important contracts.
Following the concepts that are outlined in the ethos underlying total cost of ownership is going to present your firm as a more modern-thinking, environmentally-aware business – a desirable partner. By making those small changes now – researching new construction materials that improve upon the standard, moving towards climate-friendly vehicles, and utilising the software that will help you stay sharp – you take your business to the next level, ready for whatever changes the future may bring.
Just like the modern buildings you are helping create.
Try a demo of Ensign today
If you are not already using our software for your take-off, quoting, and quantity surveying needs, you’re missing out! Request a free demo today and see how Ensign can help you streamline your business.
