Cost saving

Cost saving is a simple term referring mainly to spending less money than planned, or money saved and not spent. In the design and construction of buildings it is a crucial element of procurement within which processes are set up directly with the aim of making cost efficiencies or savings such as tender processes, value engineering processes, cost benefit analysis and so on.

In a construction project financial cost savings might be loosely categorised into two different types;

• operational cost savings
• capital cost savings.

Operational cost savings refer to the savings associated with the running of a building once it is completed or prior to and after refurbishment. These costs might relate merely to service provisons such as electricity, gas, water sewage and those within the local vicinity such as waste collection and council services. In the case of buildings that house organisations these may extend further to cover overall running costs of their operation from that building, which might include staffing, office material and consumables. The definition of these is usually described in detail by local tax offices, some of which will relate to taxes payed yearly or taxes due to be paid over a period of years. These costs in a similar way might also be desribed in terms of time period as short term financial cost savings and longer term financial cost savings.

Capital cost savings refer to savings made on the initial purchase of equipment or materials that may be used over a number of years. The capital cost savings therefore need to be balanced with the number of years an item is likely to be used for. In tax terms this might be called depreciation or in a case where the capital costs claimed in the first year is higher (rather than spread equally over the years of use) accelerated depreciation, which is normally for equipment that might rapidly decrease in value. Capital gains tax is a tax on the increase in value of a capital asset (normally over a number of years) such as a house. There are mechanisms to delay the payment of this tax and ways to offset costs incurred during that time against the taxable increase in value, thus in effect creating a capital gains saving.

In perhaps more philosophical terms cost might be described as something that is given, needed, or lost in order to get something else, a particular gain or thing a saving would be a reduction in some form. In this context finances can be considered as only one aspect in the interpretation of potential costs to be considered, other cost definitions that are increasingly being considered might be expanded to environmental costs and social costs. In particular the Brundtland report talks about the subject of sutainable development as one that "meets the needs of the present without compromising the ability of future generations to meet their own needs” (United Nations, 1987). In this understanding costs that lie beyond the financial, over longer periods of time, become a consideration. In this context terms such as whole-life costs and carbon costs might be discussed further when considering the design, construction and use of buildings.

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