Cost modelling

The following headline problems have been outlined in achieving standardised costs for retrofit: 

1. Data availability and quality 

• Information regarding the existing dwelling to be retrofitted is often lacking. There is also no industry standard on the level of survey required prior to launching a retrofit project. This means project teams often encounter unforeseen problems when they arrive on site, leading to additional works and therefore unforeseen cost. 
  • Examples include features that were not captured in the original survey – e.g. drainpipes which impact on EWI installation. 

2. Retrofit complexity, project scope and scope creep 

• In comparison to a new build project, there is an increased chance of unforeseen and unexpected additional cost after a project has commenced. This can include additional preliminary works required before measures are retrofitted, as well as potential issues with the existing dwelling which require remediation before the retrofit.  

• An initial brief given at proposal stage may not accurately capture the total scope of the project. This can lead to costs which are far more than those initially accounted for. 

• Incomplete or inaccurate data and information for the existing asset, such as the existence of material specification of insulation in the property, can contribute to issues. 

• Additional works required – e.g. structural improvements or removing asbestos – cause delays to the overall project duration. This again may lead to increased costs, disputes between project stakeholders, and “scope creep”. 

• Additional works and delays often lead to disputes between stakeholders. In turn, this leads to a requirement for negotiations to settle the additional scope and the associated costs and time to complete the project. 

• Variable project costs with no fixed price (due to uncertainties) can make retrofit unattractive to new entrants. 

• The tendering and procurement process for retrofit projects can be complex, and traditional delivery models can struggle to deliver. 

3. Funding and incentives 

• No long-term, holistic funding stream for publicly funded programmes and financial incentives for retrofit. 

• The stop-start nature of Government backing has impacted costing of projects. Depending on timing, some projects will have received financial assistance, whereas near-identical projects initiated at different times would need to be fully funded by private finance.  

“The other thing which we have identified as being needed is more funding directed into the supply chain.  National incentives towards supply and solution providers would help diversify procurement and reduce costs by 10-20% in accordance with volume of operations, helping counterbalance market uncertainties.” Energiesprong UK

4. Modelling limitations 

• Modelling the future performance of a dwelling, after a suite of retrofit measures has been installed, can help estimate the ongoing running energy costs for occupants. It cannot, however, estimate an upfront fixed price for the measures and their installation.  

• Difficulty in simulating thermal transmittance accurately.  

5. Regulatory and compliance 

• The lack of an established Finance, Regulatory and Compliance Ecosystem results in a variable sliding scale of costs; depending on approvals and permissions required to approve product innovations, or bespoke construction details based on building regulations and other applicable standards. 

6. UK supply chain capability 

• As documented in the Define the need report, the UK retrofit supply chain is relatively immature and undeveloped. As such, several retrofit measures – particularly building fabric options – are often bespoke solutions, with no associated economies of scale. 

7. Skilled workforce and competency 

• A lack of skilled and competent people can lead to issues and mistakes, resulting in rework and additional cost; e.g. a building fabric solution being installed incorrectly.  

8. The need to encourage innovation 

• Encouraging innovation in retrofit requires a difficult balance. Innovation can be promoted through adopting a flexible design brief or retrofit performance specification. However, this may lead to increased design phase costs for one-off bespoke projects. 

• There is a concern that innovation is costing landlords too much on trial projects / pilots, especially with a high failure/walk-away ratio of project stakeholders.  

• No standardised costs for approving new products during certification and testing. Some innovations are tested on live pilots / projects, adding risk.  

9. Onsite considerations 

• Road closures, crane requirements, and a lack of skilled drivers and operators for specialist vehicles can cause delays and additional costs. 

• Standardising as much of retrofit delivery as possible, such as; design standardisation of construction details and interfaces, standardised certification and testing process, or standardising the archetyping and surveying process in building a pipeline of demand. This will result in standardised and predictable costs that can be factored in at proposal and planning stages. 

• Systemised risk management, with scoring and priority applied to specifics risks and defined mitigation actions, linked to cost.  

• Better understanding of risk and allocation, based on: 
  • Assignment of archetype / typology  
  • Assignment correct survey level  
  • Allowance for the occurrence of “as-built” risks 

• Certain costs may be shared across a scalable pipeline; e.g. the CapEx cost introduction of new technology – such as procuring a drone for surveys – can be shared over many retrofit projects. 

• One method prescribed by Government is Should Cost Modelling. 
  • Should Cost Modelling is a strategic approach used in procurement, engineering, and finance to estimate what a product or service should cost based on its components, materials, labour, overhead, and profit margin. 
  • Benefits include cost transparency and negotiation, higher levels of trust between stakeholders, and value for money – particularly for publicly funded projects and programmes. 
  • Built on key model components:  
    • Material costs  
    • Labour costs – Estimated from time, skill level, and regional wage data. 
    • Overhead – Includes utilities, rent, equipment depreciation, etc. 
    • Profit margin – A reasonable markup based on industry norms. 
    • Logistics & packaging – Shipping, handling, and packaging costs. 

• Limitations of applying Should Cost Modelling to retrofit at scale: 
  • Although risk is built into the building of a should cost model, the risks unique to retrofit may need further analysis than the guidance covers.  

Questions

• How does retrofit at scale standardise a cost associated with retrofit complexity, project scope and scope creep?

Enablers

• Design and process standardisation, such as financial, regulatory, compliance, installation and procurement enables standardised and predictable costs.

Rules

• Data maturity must be at a predefined and agreed level prior to projects being costed. Examples include the design data at a predetermined BIM level, survey level being to a defined level of detail, and the kit–of–parts down selected for a portfolio of whole house retrofits. This is to ensure enough data and information exists to complete an accurate cost model.