Significance and Use

Standard practices for measuring the economic performance of investments in buildings and building systems have been published by ASTM. A computer program that produces economic measures consistent with these practices is available. The computer program is described in Appendix X3. Discount Factor Tables has been published by ASTM to facilitate computing measures of economic performance for most of the practices.

Investments in long-lived projects, such as the erection of new constructed facilities or additions and alterations to existing constructed facilities, are characterized by uncertainties regarding project life, operation and maintenance costs, revenues, and other factors that affect project economics. Since future values of these variable factors are generally unknown, it is difficult to make reliable economic evaluations.

The traditional approach to uncertainty in project investment analysis is to apply economic methods of project evaluation to best-guess estimates of project input variables, as if they were certain estimates, and then to present results in a single-value, deterministic fashion. When projects are evaluated without regard to uncertainty of inputs to the analysis, decision makers may have insufficient information to measure and evaluate the financial risk of investing in a project having a different outcome from what is expected.

To make reliable economic evaluations, treatment of uncertainty and risk is particularly important for projects affected by natural and man-made hazards that occur infrequently, but have significant consequences.

Following this guide when performing an economic evaluation assures the user that relevant economic information, including information regarding uncertain input variables, is considered for projects affected by natural and man-made hazards.

Use this guide in the project initiation and planning phases of the project delivery process. Consideration of alternative combinations of risk mitigation strategies early in the project delivery process allows both greater flexibility in addressing specific hazards and lower costs associated with their implementation.

Use this guide for economic evaluations based on Practices E917 (life-cycle costs), E964 (benefit-to-cost and savings-to-investment ratios), E1057 (internal rate of return and adjusted internal rate of return), E1074 (net benefits and net savings), and E1765 (analytical hierarchy process for multiattribute decision analysis).

Use this guide in conjunction with Guide E2204 to summarize the results of economic evaluations involving natural and man-made hazards.

1. Scope

1.1 This guide describes a generic framework for developing a cost-effective risk mitigation plan for new and existing constructed facilities buildings, industrial facilities, and other critical infrastructure. This guide provides owners and managers of constructed facilities, architects, engineers, constructors, other providers of professional services for constructed facilities, and researchers an approach for formulating and evaluating combinations of risk mitigation strategies.

1.2 This guide insures that the combinations of mitigation strategies are formulated so that they can be rigorously analyzed with economic tools. Economic tools include evaluation methods, standards that support and guide the application of those methods, and software for implementing the evaluation methods.

1.3 The generic framework described in this guide helps decision makers assess the likelihood that their facility and its contents will be damaged from natural and man-made hazards; identify engineering, management, and financial strategies for abating the risk of damages; and use standardized economic evaluation methods to select the most cost-effective combination of risk mitigation strategies to protect their facility.

1.4 The purpose of the risk mitigation plan is to provide the most cost-effective reduction in personal injuries, financial losses, and damages to new and existing constructed facilities. Thus, the risk mitigation plan incorporates perspectives from multiple stakeholders owners and managers, occupants and users, and other affected parties in addressing natural and man-made hazards.

1.5 This standard does not purport to address all of the safety concerns, if any, associated with its use. It is the responsibility of the user of this standard to establish appropriate safety and health practices and determine the applicability of regulatory limitations prior to use.

2. Referenced Documents (purchase separately) The documents listed below are referenced within the subject standard but are not provided as part of the standard.

ASTM Standards

E631 Terminology of Building Constructions

E833 Terminology of Building Economics

E917 Practice for Measuring Life-Cycle Costs of Buildings and Building Systems

E964 Practice for Measuring Benefit-to-Cost and Savings-to-Investment Ratios for Buildings and Building Systems

E1057 Practice for Measuring Internal Rate of Return and Adjusted Internal Rate of Return for Investments in Buildings and Building Systems

E1074 Practice for Measuring Net Benefits and Net Savings for Investments in Buildings and Building Systems

E1121 Practice for Measuring Payback for Investments in Buildings and Building Systems

E1185 Guide for Selecting Economic Methods for Evaluating Investments in Buildings and Building Systems

E1369 Guide for Selecting Techniques for Treating Uncertainty and Risk in the Economic Evaluation of Buildings and Building Systems

E1557 Classification for Building Elements and Related Sitework--UNIFORMAT II

E1765 Practice for Applying Analytical Hierarchy Process (AHP) to Multiattribute Decision Analysis of Investments Related to Buildings and Building Systems

E1946 Practice for Measuring Cost Risk of Buildings and Building Systems and Other Constructed Projects

E2103 Classification for Bridge Elements--UNIFORMAT II

E2166 Practice for Organizing and Managing Building Data

E2204 Guide for Summarizing the Economic Impacts of Building-Related Projects

Keywords

adjusted internal rate of return; analytical hierarchy process; building condition assessment; building economics; building systems; cost analysis; economic evaluation methods; economic impacts; engineering economics; homeland security; impact assessment; life-cycle costs; man-made hazards; measures of economic performance; Monte Carlo simulation; multiattribute decision analysis; natural hazards; net savings; present-value analysis; project management; risk assessment; risk mitigation strategies; savings-to-investment ratio; sensitivity analysis; Adjusted internal rate of return; Analytical hierarchy process (AHP); Building condition assessment; Building economics; Economic evaluation methods; Project management; Risk analysis--buildings; Savings-to-investment ratio;

ICS Code

ICS Number Code 03.100.01 (Company organization and management in general); 91.040.01 (Buildings in general)

DOI: 10.1520/E2506-11

ASTM International is a member of CrossRef.

ASTM E2506