Carmichael, D G and Balatbat, M C A (2008) The influence of extra projects on overall investment feasibility. Journal of Financial Management of Property and Construction, 13(3), pp. 161-175. ISSN 1366-4387
Abstract
Purpose The paper looks at the influence of adding more projects on overall investment feasibility under conditions of uncertainty, and how far into the future the project cash flows should be relied upon, given that the project owner expects a reasonable level of feasibility attached to the investment. Design/methodology/approach The paper presents a formulation for the feasibility of the multi-project case under uncertainty. A second order moment analysis method is adopted. Existing theory is extended to take into account the presence of multiple projects with a requirement imposed on feasibility by the project owner. In tandem with the theoretical development, example case study numerical results are presented. Findings With a conventional deterministic discounted cash flow analysis, the feasibility calculations change little in going from one to many projects. However with uncertainty attached, the feasibility calculations need to be reworked and become more complex, the issue of feasibility becomes less transparent on going from one to many projects, distinct feasibility transition points disappear, and feasibility is found to vary over the projects' time horizons. Practical implications The need for the analysis given in this paper resulted from an actual investment decision. The paper formulation provides interesting insight into feasibility calculations, and will be of use to practitioners engaged in front-end project investment risk work. Originality/value The paper provides original commentary on the feasibility of multiple projects and the time-variant nature of feasibility.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | probabilistic analysis; project management; uncertainty management |
| Index terms: | investment decision, project management, presence, uncertainty management, owner, case study, methodology, practitioner, discounted cash flow, cash flow |
| Subjects: | practitioner, data collection methods, risk assessment, environmental science, economic analysis, project management theory and practice, financial management, research methods, financial analysis, sociology |
| Topics: | Risk Management, Stakeholder Management, Roles and Professions, Sustainability, Business Strategy, Cost Management, Research Practice, Project Management |
| Descriptive scope: | 4 PCTE |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here