The 3-30-300 Rule, Understanding The Real Operating Cost Of Buildings

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Minimizing costs is at the very top of every building managers list as the ownership cost of the building goes beyond construction budget. Buildings normally have a service life of several decades, so there are maintenance costs and utility services associated. For commercial buildings, employee payroll and professional services also represent a high amount of expense over time. This makes keeping the budget in check quite a bit of challenge.

James Lang LaSalle (JLL), a leading real estate firm, conducted a study of how the cost of commercial buildings are spread out including rent, utilities and payroll. The study observed that the average cost distribution is as following:

$3/sq.ft. for utilities
$30/sq.ft. for rent
$300/sq.ft. for payroll

This was later termed as the 30-30-30 rule, and it provided companies with useful insights on how to optimize building operation costs. An important thing to keep in mind is that the 3-30-300 is a rule of thumb so the cost may vary from building to building.

Most companies tend to focus on reducing the cost associated with rent and utility, and productivity gets less priority. To understand the impact of productivity on cost savings, let’s consider an example: increasing energy efficiency by 10% would save $0.30/sq.ft. and decreasing rent by 10% would generate $3, and a 10% boost in productivity would yield $30.

A MEP engineering team can not only help you optimize energy efficiency and water consumption measures for increasing utility savings, but also improve the indoor environmental quality to boost productivity.

Improving Work Productivity with MEP Engineering

Lawrence Berkeley National Laboratory (LBNL) conducted a study which revealed that peak human productivity can be achieved with the indoor temperature is in the range of 22 degree Celsius to 23 degree Celsius. MEP Engineering can contribute to this and also many other aspects of building performance that can boost productivity:

Thermal comfort
Humidity control
Acoustics and noise reduction
Adequate lighting and glare prevention
Indoor air quality

Along with booting human comfort, reducing energy and water consumption, and improving indoor environmental quality can help building owners to score credits for LEED certification and WELL certification.

Considering the 3-30-300 rule, when the productivity gains are factored in, the ROI from the building investment is much higher, with reduced payback period. This means building owners should reject energy saving measure solely designed for saving energy but hampers productivity. According to the rule, 0.1% productivity loss can negate the economic benefits of 10% of savings on utilities. Also, there is a common misconception around energy efficiency and indoor environmental quality that involves a trade-off, meaning one aspect would improve at the expense of the other. Smart design decisions can achieve an effective synergy between both.

Smart Investment Decisions For Building Upgrades

Smart investment decisions refer to avoiding poor decisions that look promising on the first look but have more to hamper than offer. For instance, if buildings concentrate on reduced workplace areas, it results in reduced sq.ft/employee. This will ultimately lead into a cluttered work environment, and can cause stress among employees which reduces productivity.

Similar logic can be applied to energy saving measures and indoor environmental quality. For example, an arbitrary reduction in ventilation can save fan power which reduces heating or cooling requirement. However, reduced outdoor airflow leads to accumulation of harmful air pollutant, which can have serious impact on health and productivity.

In simple words, any savings achieved at the expense of productivity will most likely have a negative financial impact. Financial benefit of a 10% increased productivity is around 10 times greater than saving 10% on rent, and around 100 times greater than saving 10% on utility services.