Environmental Engineering Reference
In-Depth Information
tion of many projects go beyond standard return
on investment and other short-term financial
evaluations. The more complete evaluation of
some projects requires the incorporation and
consideration of risk, strategic, operational, eco-
nomic, and environmental factors. In particular,
a normative investment appraisal model has been
developed which has been called the Financial
Appraisal Profile (FAP) model. This model looks
at a capital investment project from a financial,
risk, and strategic viewpoint. While the FAP model
includes some of the more traditional approaches
to investment appraisal, it also includes some
new techniques and modifies others to create a
model that embraces a wider profile of an invest-
ment opportunity. The model does not attempt
to combine financial and non-financial data into
single cashflow figures, a stance supported by
Tebbutt et al., (2003). It is a pragmatic attempt to
formalise what is often practised in industry and
commerce, where the single measures of NPV
and IRR are supplemented by subjective claims
of non-financial costs and benefits.
The FAP model adopts its own structured
protocol, for, as some academics would argue, a
number of management scholars believe that the
process used to make strategic decisions affects
the quality of those decisions (see, for example,
Fredrickson, 1985). Most current models used for
the appraisal and evaluation of strategic projects
lack this overall structure to aid organisations in
the process of evaluation. Here we look at intro-
ducing a fourth dimension to the FAP model to
focus specifically on environmental sustainability
issues.
Other models, such as the Balanced Scorecard
(Kaplan and Norton 1996), take on a wider per-
spective to performance measurement than just
financial measurement, and a multi-dimensional
performance measure, linking them to business
strategy. However, they do not produce the ana-
lytical data to the same degree as the FAP model.
Tebbutt, et al., (2003) have already pointed out
approach when applied to capital project apprais-
als. However, the fact that the Balance Scorecard
highlights the importance of other, non-financial
measures, and provides a 'judgmental/subjective'
framework for linking them to business strategy
is of particular relevance to establishing sup-
port for the FAP model, which takes on both a
multi-dimensional and multi-attribute approach.
The FAP model differs from all other appraisal
models in it unique approach to the involvement
of general management and the protocol followed
in determining the respective 'values' on which
the investment is evaluated.
Environmental Issues
Organisations have been facing environmental
pressures from a variety of stakeholders including
government regulators, communities, customers,
and employees (Shropshire and Hillman, 2007;
Zhu and Sarkis, 2007). Competitors may also
serve as stakeholders within a given industry,
putting pressures on organisations to react in en-
vironmentally sustainable ways (Spence, 2007).
Responding to these greening pressures requires
both operational and strategic integration of the
various environmental factors to the project and
investment appraisal level by organisational
decision-makers (McDermott, et al, 2002). Eco-
logical modernisation theory has posited that
with appropriate technology development and
integration organisations can provide substantial
positive gains on both environmental and eco-
nomic benefits at both national and organisational
levels (Burnett, et al., 2007; Revell, 2007). Thus,
the selection of programs, projects, and technolo-
gies under the purview of capital appraisal and
investment is critical for organisations to make
gains on both environmental and economic dimen-
sions. Incorporating environmental dimensions
into these decision frameworks is a critical step
in this process.
The integration of environmental factors,
