Cost approach

method
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Cost Approach method

WHAT IS COST APPROACH

METHOD
The cost approach is a real estate valuation
method that estimates the price a buyer
should pay for a piece of property is equal
the cost to build an equivalent building. In
the cost approach, the property's value is
equal to the cost of land, plus total costs of
construction, less depreciation.

MATHEMATICAL FORMULAS
FOR CALCULATING VALUE
There are two main types of cost approach
appraisals:

Reproduction method: This version considers what a replica of the

property would cost to be built and gives attention to the use of
original materials.
Replacement method. In this case, it is assumed that the new
structure has the same function but with newer materials, utilizing
current construction methods and updated design.
When all estimates have been gathered, the cost approach is
calculated in the following way:
cost – depreciation + land worth = value of the property.

HOW CAN COMPANIES CREATE

VALUE FROM THEIR
INNOVATION?
Value innovation, as defined by Kim and Mauborgne, and Kim and
Mauborgne, is making “the competition irrelevant by offering
fundamentally new and superior buyer value in existing markets and
by enabling a quantum leap in buyer value to create new markets”.
The concept of value innovation is a summation of analytical
outcomes from 150 strategic moves spanning more than 30
companies, worldwide, in approximately 30 industries, as well as a
study for the business launched of approximately 100 companies to
quantify the influence of value innovation on a company’s growth in
revenues and profits. From a company perspective, Mohanty, Mele,
Mele, Russo Spenaviewed value innovation as resource integration
and superior competency development; meanwhile,
Setijonodescribed value innovation as “creating stakeholder value
through radical (disruptive)-attractive quality”, where the logic
behind it is to provide a total solution, extraordinary experiences, and
cost reduction through product, service, and delivery platforms.