FINANCIAL ANALYSIS OF A RENOVATION IN THE CIRCULAR ECONOMY

Abstract

Purpose – To address its immense raw material consumption, the built environment is called for achieving a Circular Economy (CE), potentially saving 350 billion Euros in the process. Renovation of existing buildings, as a possible solution, is to be prioritised rather than constructing new buildings. To achieve a CE, strategies have been developed that can be applied to renovation projects. Yet, as an emerging field of science and lack of financial analysis-based literature, it remains challenging to understand these CE strategies from a financial perspective. Hence, this study aimed to develop a financial analysis method to show the financial attractiveness of CE strategies applied to renovation projects.

Methods - This study designed six renovation options where the reuse, repair and recycle CE strategies are applied to parts of a renovated building. This study employed three different methods to estimate the values of reused, repaired and newly produced building elements, respectively. This study used the following three financial performance measures to rank six renovation options from a financial perspective: the total cost, the net cost, and the return of investment. This study tested the developed financial analysis methods to a case study.

Results - The following two renovation options were mostly preferred from a financial perspective: the in-place reuse and repair of the existing building elements. Yet, the three financial performance measures ranked renovation options differently per each part of the building. Throughout the sensitivity analysis, it was observed that the subjective judgements that a user of the financial analysis makes considerably influence the renovation options’ rankings.

Discussion and conclusion – The two main findings are as follows. Firstly, it is a natural consequence that value is subjectively judged. Nonetheless, providing the elaborated criteria to show how the subjective factors are formulated can be helpful to reduce the intervention of intuition, emotions and prejudice. Secondly, a lack of information on both the existing building elements and secondary building elements limits the accuracy by which the value of reused building elements can be estimated. That limitation may lower the credibility of a result, even though the financial analysis shows that using secondary building elements is preferred, Thus, it was recommended to maintain the current material passport system and establish a platform where the information is share.