Woodhead, R (1997) Exploring the hurdle rate in preparation for a value management workshop planning session. Journal of Financial Management of Property and Construction, 2(2), pp. 21-38. ISSN 1366-4387
Abstract
Experienced clients of the construction industry repeatedly have many property teams based within geographical regions or organisational divisions. Individual property managers often propose projects which compete for internal budgetary approval This paper explains how senior managers make capital investment decisions and evaluate the Commercial attractiveness of the proposal on financial grounds. During project appraisal the capital sanctioning decision is often linked to a Comparison between the project's Internal Rate of Return (IRR) and the organisation's hurdle rate. Whilst other appraisal techniques are used, this method of selecting projects is prominent. A worked example is provided in the appendix. This paper explains how the hurdle rate is established in experienced client organisations. Experienced clients are taken as those firm's with a core business outside property related industries and who have experience of major project procurement. The paper commences by placing the work in the context of a larger research project exploring how clients of the construction industry arrive at the decision to build. The paper leans heavily towards the subject area of corporate finance in order to link Capital budgeting to the commissioning of buildings. Its intention is to allow Value Management (VM) academics and facilitators specialising in Front-End VM and Preproject VM to bring the accountant's perceptions into the decision making process.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | value management, corporate finance, capital investments |
| Index terms: | core busines, workshop, capital budgeting, decision-making process, facilitator, major project, placing, value management, construction industry, approval, proposal, manager, corporate finance, capital investment, project appraisal, client organization, commissioning, appraisal, accountant |
| Subjects: | completion, budgeting, factor and component analysis, economic analysis, strategic project management, project planning, practitioner, client relations, contractual role, construction type, industry analysis, decision analysis, concrete and cementitious materials, management, project delivery, business, profession |
| Topics: | Project Management, Risk Management, Quality Management, Value Management, Cost Management, Business Strategy, Research Practice, Construction Materials, Roles and Professions, Stakeholder Management, Construction Technology, Organizational Design, Contract Administration |
| Descriptive scope: | 3 PCT |
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