“Blueprints” is a new Spark series exploring McKinstry’s core business philosophies from our leaders’ perspective. This is the first story in the series, from McKinstry’s CEO: Dean Allen.
Whether you’re shopping for a car or building a skyscraper, your goal is the same: making decisions that maximize value and minimize cost over the long-term.
Constructing a multi-story building is obviously a bit more complex than buying a minivan, but the principle remains the same in both cases: educated decision-makers with comprehensive information in hand will make superior choices.
When it comes to being fully informed, there’s no better strategy than conducting a Total Cost of Ownership (TCO) analysis. TCO may sound like an intimidating and technical concept, but it’s much like the process of buying a car.
Some car buyers—whether they’re in a rush or just impulsive by nature—will just pick a car they like, pay the asking price, and that’ll be that. Most of us, however, can agree that making such a major investment merits a little more consideration. If you’ve ever compared the gas mileage, safety rating, durability, and different cost of various makes and models before you step foot in an auto dealership—well, you’ve already conducted a TCO analysis.
TCO & Construction
While the formalized concept of TCO has its roots in the tech industry of the 1980s, the notion of comprehensively evaluating lifetime costs before making a fiscal decision is second-nature in many industries. Construction, unfortunately, isn’t one of those industries.
The ugly truth of our industry is that many building owners simply don’t think about the operating costs of a building until they’ve moved in—when they should be considering those costs all along. By following the traditional construction process and only speaking to specialized contractors in a prescribed order, building owners frequently underestimate and misjudge the total cost of their building.
A TCO analysis, in comparison, takes all costs into account from the outset, including more-obvious “first” costs incurred from inception to conclusion of construction, but also less-apparent operating costs that kick in once the building is occupied, “churn” costs due to potential occupant relocation and space use changes, and “human productivity” costs tied to how people may be impacted by the surrounding built environment.
TCO is robust and outcome-focused in a way that the traditional construction process simply isn’t.
Because TCO takes such a comprehensive view of costs beyond construction, it can be used as the basis for developing a plan that optimizes operational choices for a selected building design, in addition to providing a valuable benchmark for the future measurement and management of a facility.
We’ve found this kind of thinking works wonders for our clients.
Years ago, McKinstry was working on a laboratory project for a Seattle-area client, and that client was trying to figure out their heating system. Since it was a lab, the building needed steam for sterilizers.
The client decided, quite logically, that they’d add a giant steam boiler to heat the building and power the sterilizers. They asked their contractors to price this design.
During the design phase, however, McKinstry conducted a TCO analysis, which scrutinized the heating system along with countless other aspects. While it might have seemed counter-intuitive to have a more-traditional gas boiler to heat the building and a tiny steam boiler for the lab equipment, our TCO analysis determined that was indeed the ideal design for this client.
What the client’s design team had missed—but our TCO analysis brought to light—is that Seattle city codes required a 24/7/365 operator for steam boilers of a large size as a safety precaution. All said, paying for that amount of skilled staffing would have cost the client hundreds of thousands of dollars every year.
In the end, McKinstry‘s advocating for an unorthodox—but cost-effective—two-boiler system helped the client save money.
Why we believe in TCO
Now, you might be thinking TCO seems like a total no-brainer and wondering why every construction project doesn’t conduct a TCO analysis. Well, even though more and more of the industry is headed in this direction, most construction firms simply don’t have the breadth or depth of experience to attempt a true TCO analysis. It isn’t a simple thing to do, and even we can’t do it for every single job.
Increasingly, though, our clients are realizing the enormous value of obtaining better data to make superior construction decisions. That value is the essence of TCO. For building owners who care about operating and maintaining their buildings throughout their lives, it’s the only way to make well-balanced, informed decisions.
In my opinion, building owners deserve to know the end before they start. That means they should have comprehensive, guaranteed cost accounting—the kind provided by TCO analysis—and not just a minimum cost or an educated guess based on incomplete information.
At McKinstry, we’re proud to accept that challenge, and we drive our performance to deliver on that promise. We’re there for the life of your building, and we wouldn’t have it any other way.
Dean Allen is McKinstry’s CEO.