FINANCIAL ANALYSIS OF A RENOVATION IN THE CIRCULAR ECONOMY
Summary
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.