6 Methods for Overcoming the High Initial Costs of Smart Building Projects
Smart building technologies offer numerous advantages, including energy conservation, enhanced safety and simplified operation. However, these technologies often come with a significant price tag. Budget constraints can limit the scope of smart building projects, potentially leading to outcomes that fall short of original objectives. To address the high initial costs while achieving operational goals, owners and operators can explore creative financial strategies, leverage incentives and adopt approaches that maximize long-term value. Let’s examine some effective methods for overcoming these financial challenges.
1. Lease or Finance?
Many are choosing to lease or finance smart building equipment rather than pay upfront for costly hardware, software and maintenance contracts. This approach is beneficial when budgets are tight, as it allows for the spread of costs over time. As long as the return on investment (ROI) for the technology surpasses the total expense, even when factoring in the additional costs of leasing or financing the project, leasing or financing can be great options that get a smart building technology project off the ground.
2. Look Into Managed Service Options
Like cloud computing software-as-a-service models, which shift CAPEX to OPEX, building owners are increasingly looking to managed service providers that procure, install and manage smart building technologies for a consistent and predictable monthly or annual recurring fee. This approach not only offers the usual financial benefits of shifting costs to operational expenditure but also reduces the burden of in-house management and maintenance. Often, managed smart building services prove to be more cost-effective than having building owners handle the technology implementation and operation themselves.
3. Government/Utility Incentives and Rebates
If a smart building project will result in energy or environmental conservation, governments and utility companies commonly offer incentives, tax deductions and rebates that can help offset the cost of implementation. Examples include Energy Efficient Commercial Building Deduction, Energy Efficiency & Conservation Block Grant (EECBG), and LEED certification. Researching and contacting relevant federal and local government entities early in the technology planning process can uncover a number of ways to recoup expenses that may never have been known.
4. Phased Implementations
While less than ideal, some smart building technology projects can be deployed in multi-year phases. Doing so will shrink the amount of upfront capital required each budget season and instead allocate it across multiple budget years. Be cautious, however, when planning the phased approach so that the technology's benefits are realized immediately as opposed to only gaining an ROI after the final implementation phase is completed.
5. Competitive Bidding
The great thing about modern smart building technologies is the abundance of available options and contractors willing to install them. With a wide range of vendors and servicers, it’s important to seek multiple bids to ensure you get the most value for your investment.
By inviting multiple vendors to submit proposals, building owners and developers can compare different solutions, fostering a competitive environment that drives down costs and enhances quality. This process encourages suppliers to offer the most advanced and efficient technologies at the best possible prices, ensuring that smart building projects not only meet but exceed industry standards. Additionally, competitive bidding promotes accountability and fair play, reducing the risk of favoritism and ensuring that the chosen technologies are truly the best fit for the project’s needs.
6. Cost-Benefit Analysis and PoCs Are Key
One final piece of advice is to perform a thorough cost-benefit analysis that clearly demonstrates the long-term savings and benefits of each smart building technology being considered. Additionally, don’t blindly go into a smart building implementation without “kicking the tires” with a proof of concept (PoC) phase where vendors can clearly demonstrate that their technology is the right fit for you.
After these two tasks are complete, the ROI estimate will more closely reflect what will happen in real life. Then, it’s just a matter of choosing how to get the funds required to make it happen.
