Cost Effectiveness of Improving Indoor Environments to Increase Productivity

Designers and operators of buildings routinely consider initial costs and expected energy and maintenance costs when making investment decisions. The recently developed estimates of how ventilation rates and temperatures affect work performance enable an approximate accounting for the influence of related potential investments on productivity costs. This section summarizes some illustrative example calculations. The relevant literature is very limited and many of the published examples are for buildings located in northern Europe.

The financial benefits of improved indoor environmental quality may include the value of improved work performance, reduced absence, and reduced health care needs; however, this document considers only work performance. The benefits will often be accompanied by costs incurred to improve indoor environments. Expenditures may be required for improved equipment, e.g., for building heating, ventilating, and air conditioning, for energy, or for improved building maintenance and cleaning. The costs and benefits may not be allocated evenly among parties. For example, an employer benefits directly from improved work performance while any associated changes in energy costs may be assumed by the building owner, who may or not also be the employer.

In non-industrial workplaces, the costs of worker salaries and benefits are normally much higher than the total costs of providing workspaces, which in turn, are much higher than the incremental costs of workspace changes for improving indoor environmental quality. For example, in office buildings located in North America, staff costs are typically 100 to 200 times total building energy costs [1] and salaries are about eight times larger than total annualized costs for building construction, operation, and maintenance [1]. Consequently, small percentage improvements in work performance can pay for much larger percentage increases in building costs. For example, the savings from a 1% increase in performance could be sufficient to offset a 50% increase in energy costs in many buildings.

Figure 1 and equation 1 provide the means for estimating the productivity costs of a technical measure that changes indoor air temperature. Based on this figure and the equation, Table 1 illustrates the anticipated financial benefits from the improved work performance when a technical measure causes a change in indoor air temperature by 1 ^oF toward the optimum temperature for performance of approximately 71 ^oF.  The annual cost of a worker’s salary plus benefits was assumed to be $100,000, such that a 1% improvement in work performance was valued at $1000.  The numbers in this table do not account for the energy and equipment-related costs of making these changes in temperatures.

Table 1. Estimated value of work performance changes from a 1^oF shift in temperature toward the optimum for performance¹.

Figure 3 and equations 2 and 3 provide the means for estimating the productivity impacts in offices of technical measures that change ventilation rates.  Based on this figure and the equations, Table 2 illustrates the anticipated financial benefits from various increases in ventilation rate. The annual cost of a worker’s salary plus benefits was again assumed to be $100,000. Note that calculations should not be made for ventilation rates smaller than 13.8 cfm per person or larger than 80 cfm per person.  Uncertainties will be high particularly for ventilation rates larger than 28 cfm per person. 

Table 2. Estimated value of work performance changes from changes in ventilation rates

Cost benefit analyses for hypothetical case studies, for buildings in Finland, have been used to illustrate the large potential paybacks when improvements in indoor environments increase work performance. Summaries of these analyses are provided in a guidebook [1].

·  One example calculation evaluated the use of a high rate of ventilation during cooler night-time periods in a non air-conditioned office building in Finland to reduce daytime temperatures. The estimated financial benefits of improved work performance, resulting from a reduction in elevated indoor temperatures were 20 to 80-fold greater than the costs of running fans at night to perform the cooling. 

·  Another set of example calculations compared the costs of increased mechanical ventilation or increased ventilation system operation time in a non air-conditioned office building in Finland with the estimated productivity benefits from the resulting reduced air temperatures. The addition of air-conditioning (mechanical cooling) was considered as a third option. For these three options, the estimated annual net savings per person were $560, $400, and $190 (savings were expressed as 380, 270, and 130 Euros in the original paper and a conversion of $1.464 per Euro was used) per person, respectively. 

·  A third set of example calculations compared the costs of increased outdoor air ventilation in an office building in Finland with the productivity benefits of increased ventilation as depicted in Figure 3. The estimated benefit-to-cost ratios are shown in the following table.

Table 3. Example cost benefit analyses for increasing ventilation in an office building [1]*.

Initial ventilation rate (cfm per person)	Final ventilation rate (cfm per person)	Estimated benefit-cost ratio [Productivity benefit divided by costs of energy, equipment, and maintenance]
13	20	9.4
13	40	7.0
20	40	6.2

*The assumed costs for heat and electricity were $0.05 and $0.13 per kilowatt-hour (kWh), respectively.  The annual salary was $44,000.

The example analyses provided above used weather data and energy prices for Helsinki, Finland and annual office worker salaries that are relatively low by U.S. standards. Calculations for other locations would result in different benefit-cost ratios.  Many U.S. cities have warmer summer weather and higher energy prices than Helsinki. Considering climate, cost, and energy price differences, calculated benefit-cost ratios of measures that reduce peak indoor temperatures will generally be higher in these U.S. cities.

The three example cost benefit analyses provided above all involve increases in energy consumption. Given the concerns about climate change, the preferred options for increasing productivity would be energy neutral or, even better, energy conserving. One example is use of an economizer control system in an air-conditioned building. The economizer system increases the outdoor air supply above the design minimum whenever doing so eliminates the need for energy-intensive mechanical cooling. Thus, economizer systems save energy. In many climates, economizers also dramatically increase time-average ventilation rates, e.g., by a factor of two. A prior paper [2] evaluated the energy savings and projected financial benefits from reduced sick leave when an economizer system was used in an office building located in Washington, DC. However, one can instead easily use the ventilation rates in this paper and estimate the productivity benefits from increased ventilation via Figure 3 or equations 2 and 3. The results are summarized in Table 4.

Table 4.  Example analyses of financial benefits of an economizer system in an office building located in Washington, D.C.

Average Ventilation Rate with no Economizer System (cfm per person)	Average Ventilation Rate With Economizer System (cfm per person)	Energy Cost Savings ($ per person-year)	Productivity Benefits from Increased Ventilation with Economizer System* ($ per person-year)
20	40	~ $26	~$1500

*Using the relationship of work performance with ventilation rate in Figure 3, ventilation rates and energy consumption estimates from reference [2] and assuming an annual cost per employee for salary and benefits of $100K.

The costs and productivity benefits of technical measures that improve indoor environments will vary considerably among buildings, climates, and with type of work. Consequently, the benefit-cost ratios provided above serve only as examples which indicate that benefits may often exceed costs by a wide margin.

1.         Wargocki, P., et al., Indoor climate and productivity in offices: how to integrate productivity in life cycle analysis of building services. REHVA Guidebook No. 6. Federation of European Heating and Air Conditioning Associations. 2006b, Brussels, Belgium.

2.         Fisk, W.J., et al., Economic benefits of an economizer system: energy savings and reduced sick leave. ASHRAE Transactions 2005. 111(2): p. 673-679.