Smart Buildings: Less Flash, More Function

People often ask me what makes a building "smart" and why they should spend money to make buildings smarter. Let’s return to the basics on how a smart building can drive business value versus what is speculation and experimentation.

Good guiding policies are not goals or visions or images of desirable end states. Rather, they define a method of grappling with the situation and ruling out a vast array of possible actions. - Richard Rumelt

There are many formulas out there for calculating the ROI of smart building investments, but most rely on metrics that are hard to measure and link to the investment. Fundamentally, I see only two metrics that matter in commercial real estate:

Is the space in demand? For landlords, this means reducing the vacancy rate. For owner/occupiers and tenants, this means increasing the space utilization.

Are finances managed effectively? For landlords, this means increasing Net Operating Income (NOI). For owner/occupiers and tenants, this means reducing operating expenses (OpEx).

Managing Demand

The right location and proper features drive demand for space. Although smart features may be attractive to occupants, essential features matter most: sufficient square footage, available desks & meeting rooms, and amenities. Features like thermal comfort, indoor air quality, and sustainability are simply expected in today’s market, and they depend more on design and effective operations than on sophisticated occupant-facing capabilities.

So where can smart building add value? When you have the right product, the best way to keep demand high is with excellent customer service. Smart buildings can help operations teams close tickets faster or prevent issues before they need tickets.

The best customer service is if the customer doesn’t need to call you, doesn’t need to talk to you. It just works. - Jeff Bezos

Managing Finances

Much has been written about how smart buildings boost productivity, reduce sickness/absenteeism, or improve employee retention. The problem? These benefits are hard to measure and even harder to link to specific smart features. They don’t directly improve NOI or reduce OpEx for the real estate asset, making them too speculative for a business case.

In my experience, smart buildings can instead add clear value by helping to control the major operating expenses: energy costs, maintenance & repair costs, and capital expense allocation.

Key Value Drivers

To summarize, ask these questions about your smart building business case:

Does measurably improve the ability to:

1. Close tickets faster?
2. Reduce energy expenditures?
3. Reduce repair & maintenance (R&M) expenditures?
4. Allocate capital expenses (CapEx) for long term returns?

If the answer to all questions is no, it’s a speculative investment with unclear returns. Keep experimenting and innovating, but fund it separately from your core business case. Want extras like interactive lobby displays or IoT sensors for advanced monitoring? Go ahead, but I would leave quantitative benefits out of your ROI calculations. Better still, experiment in a dedicated R&D space until the business value is clear and measurable.

If any answer is yes, focus on getting those benefits with the minimum cost, new technology, and change management. A new dashboard could help, but likely will not if it disrupts existing operations. Smart building initiatives have suffered from an ignorance of existing workflows and an unjustified urgency around acting on new insights.

Good design is actually a lot harder to notice than poor design, in part because good designs fit our needs so well that the design is invisible. - Donald Norman

Smart buildings work best when they enhance existing business and operational decisions without creating parallel or confusing workflows. Here are the relevant operations workflows and their timeframes:

Immediate (Hours/Days)

• Ticket Resolution
• High-Priority Reactive Maintenance

Short Term (Weeks/Months)

• Preventive & Low-Priority Reactive Maintenance
• Energy Management

Long-Term (Years)

• Space Refreshes
• Capital Planning

Let’s explore how smart building features can improve these workflows and our four value drivers.

Solutions for Immediate Needs

When handling immediate issues, operations teams need to know:

• Where and what is the issue?
• What equipment serves that area?
• Where are the reference documents I need?

Smart buildings can help if you have a central Computerized Maintenance Management System (CMMS) for managing a digital asset register, tickets, and maintenance workflows. Start there before adding more advanced functionality that depends on integration with a Fault Detection & Diagnostics (FDD) system. Here are some possible solutions:

1. Automatically populate incoming comfort tickets with the equipment that serves the relevant zone to save time spent searching
2. Provide “technician insights” by displaying current and historical issues with the relevant equipment to minimize repeat troubleshooting
3. Provide quick access to drawings, operations & maintenance (O&M) manuals and other relevant documents. This could be your real “digital twin”

Solutions for Short-Term Needs

For short-term planning, operations teams ask:

• What equipment needs preventive maintenance today?
• What low-priority reactive maintenance can I address?
• Can I also make changes to reduce energy consumption?

Smart buildings can help when you have the necessary software and workflows for maintenance tracking:

1. Reprioritize maintenance tasks using fault data and impact scores, backed by agreements for condition-based maintenance
2. Provide “operational insights” by tracking recurring issues across similar equipment, helping to identify systemic problems rather than treating symptoms
3. Equipment-level energy calculations can show when tuning is needed during service visits, avoiding the need to wrangle submeter data

Solutions for Long-Term Needs

For space refreshes, designers and operations need to know:

• Which space types and zone configurations aren’t working?
• What equipment should we keep vs. replace during a Tenant Improvement (TI)?
• What other high-ROI CapEx measures should we consider?

Although under-explored in the industry and likely not available today off the shelf, smart buildings can offer several opportunities here:

1. Combined ticket and fault data can show when zones aren’t working well for occupants (e.g. over/under-sized), helping MEP designers make improvements
2. Analysis of maintenance costs, faults, and energy use can guide equipment replacement decisions during renovations
3. Performance degradation data can help build clear business cases for central plant upgrades that are commonly left out of capital planning

What Should You Get?

Let’s see what good results look like for each value driver, along with some leading indicators to measure:

Close Tickets Faster

Operations teams should be able to quickly find the location, cause, and resolution steps for any issue. Automatic access to the right data and documentation eliminates time spent searching.

Operational Metrics to measure:

• Mean Time to Resolution
• First-Time Fix Rate
• Response Time Compliance

Reduce Energy Expenditures

Teams should be able to address energy waste at the equipment level during regular maintenance, reducing the need for submeter data analysis and external energy audits.

Operational Metrics to measure:

• Total Energy Use Intensity
• Peak Demand Charges
• Equipment Runtime Optimization

Reduce Maintenance Expenditures

Teams can fix low-priority issues during scheduled PMs, avoiding extra service calls. Analysis of data makes it easier to identify equipment with high repair costs for replacement during refreshes.

Operational Metrics to measure:

• Reactive vs. Preventive Ratio
• Labor Hours per Ticket
• Parts & Materials Cost

Allocate CapEx for Long-Term Returns

Data-driven iterations help each refresh better serve occupants and generate fewer tickets. High-ROI central plant upgrades improve financial performance or reduce business risk over time.

Operational Metrics to measure:

• Equipment Failure Rate
• System Performance Degradation
• Total Cost of Ownership (TCO)

Conclusion

Almost all of the big, great ideas in business are very simple. There seems to be some perverse human characteristic that likes to make easy things difficult. - Warren Buffett

Having led engineering initiatives in complex built environments, I’ve found that smart buildings don't need complexity to add value. Focus on measurable improvements to existing workflows, not speculative benefits. This creates a clear business case with consistent returns. Start with the basics - helping operations teams close tickets faster, reduce energy and maintenance costs, and make better capital planning decisions.

Evaluate everything else - from fancy dashboards to AI capabilities - against these core metrics or else treat them as experiments. When we move past the hype and focus on what actually improves demand and reduces OpEx, the path forward becomes much clearer. Smart building technology works best when it makes existing processes work better, not when it tries to reinvent them entirely.

Post-Script: Evaluating AI in Smart Buildings

Success in AI isn't about chasing the biggest numbers – it's about understanding what your organization can realistically execute and start building from there. - Sol Rashidi

Using our framework, the question of whether or not to include AI features such as workflow enhancements, chatbots, and predictive modeling becomes easier to answer. Does it measurably and consistently help close tickets faster, reduce energy and maintenance costs, or make better capital planning decisions?

Even promising solutions need to answer these key questions:

• Do you have sufficient infrastructure, data, and talent to fully realize the benefits?
• Does it require more staff training and upkeep than it saves in time?
• Can your operations teams adapt to the new workflows?

For a much more detailed deep-dive on the potential risks of involving AI in building operations, see my previous article. I also highly recommend the work of Sol Rashidi on this topic.

Author's note: This article reflects my personal views and professional experience in the smart building space, and does not represent the views of any specific organization.