Page 53 - The Green Building Bottom Line The Real Cost of Sustainable Building

32 CHAPTER 1

$1,157,000, but it nevertheless decided to do so. Is the entire investment worth it?
Why or why not?
In the same way that I have been conservative in my estimate of the costs of a values-
oriented program by overstating expenses, I will be conservative in my estimate of
value creation by understating the value addition. In doing so, I will adopt several
assumptions.
First, we’ll assume that no value creation occurs in the first five years after the values-
shaping program occurs. Change management, as many businesses know, takes time.
There’s an initial “storming” period before practices become normalized, a period in
which some people leave the organization because they’re uncomfortable or don’t fit
with the new orientation. There’s also an inevitable lag time before principles are put
into practice. For instance, when Melaver, Inc. decided that it would construct all of
its buildings to a minimum of LEED standards, it took several years before our first
LEED building was certified. It took several years before 80 percent of our staff be-
came LEED accredited. It simply takes time for a company to establish credibility
both within the organization and externally, time before beliefs morph into actions that
translate into value creation.
Value creation is typically parsed into four major categories, two that tend to be tan-
gible and short term, and two that tend to be more intangible and long term. Those four
categories are:

■ Reduced costs (short-term and tangible)
■ Reduced risks associated with various types of liability (long-term and intangible)
■ Increased revenues (short-term and tangible)
■ Increased value through brand build and reputation (long-term and intangible) 42

I want to focus on the value creation that occurs specifically because of a company’s
ideology and not on the carryover value creation that occurs as a result of practices
that are the result of this ideology. That’s a tricky judgment call to make, since the two
are closely interrelated. Let’s look at some examples.
While Green, Inc., like Melaver, Inc., only builds to LEED specifications as a result
of its sustainable orientation, the cost savings it will see as a result of greater energy
and water efficiencies are not factored in to our calculations. Similarly, although
Green, Inc., also because of its LEED orientation, is able to reduce its liability expo-
sure by not building near floodplains, the savings it sees in lower insurance premiums
and lower underwriting costs for construction loans is also not factored in. Both of
these components result in clear savings for the company and will be addressed else-
where in this book (see Chapter 4). But because they have to do with what the com-
pany does as opposed to what the company values, I excluded them from this
economic analysis.
The third assumption I use in this analysis is that any value creation that cannot be
determined concretely will not be considered. So intangible value created through
brand build and reputation, while certainly important, is left out of our analysis. It’s
not that such intangibles are unimportant. Herb Kelleher, former CEO of Southwest