The Effect of Intangible Benefits on Cost Estimation

It is crucial to identify all the related inputs and outputs and quantification for the vital aspects of conducting a Life-Cycle Cost Analysis (LCCA) and deciding the cost-effectiveness of any particular construction alternative. The identification, whenever possible, is important as costs and benefits facilitate informed decision making. Costs are willingly quantified unlike benefits as it has a monetary value attached to it. It is difficult to quantify benefits as they are mostly intangibles. The various non monetary benefits like aesthetics, security, and historic preservation are often not considered. It is very important to analyze benefits with equal significance as cost.

 

Various investment decisions have a target specified for the required or estimated output. The target is not necessarily always quantified but can be quantified and therefore presents a potential measure of advantages related with the investment. A Benefit/Cost Ratio (BCR) can be calculated when the output from the investment is quantified and a consistent annual cost is obtained from LCCA.

 

There are also various non-quantifiable measures of benefits, which inspite of developing quantitative measures, cannot be analyzed. There are some projects can offer benefits like preservation of cultural & historical resources, enhanced quality of the working environment, security of the building occupants, and similar qualitative benefits. Though difficult to assess, these advantages require documenting and presenting in the LCCA. The subjectivity and inherent lack of precision of these qualitative benefits create difficulty for written and accurate descriptions used to analyze these benefits.

The Effect of Intangible Benefits on Cost Estimation

The cost estimation decision makers should follow certain strategies so that qualitative statements have a positive impact on the analysis. It is suggested that:

 

  • All the advantages related with each alternative under consideration are identified and complete detail should be given.
  • The benefits that are common in kind but do not fall in the same degree among the alternatives should be identified and all the differences should be explained in detail.

 

To incorporate non-monetary costs or benefits in the decision-making process, the analytical hierarchy process (AHP) should be utilized. These guidelines help in documenting the intangible benefits can be measured in non-economic terms like aesthetics, security, or morale, and improve the value of benefit/cost analyses and aid in easy informed decision-making.

 

It is also essential to include information about the negative aspects of alternatives to confirm the focus and completeness of the analysis as this helps in decision making and determining the possible investment alternatives.

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