Civil Engineering Reference
In-Depth Information
abandon, and multistage investment with option to stage. The proposed method-
ology draws from financial option pricing method and uses the CAPM method to
estimate the parameters for the model. An important aspect of this framework is
that the building stakeholders do not have to estimate parameters beyond those that
are typically known to them, including the MARR and risk-free interest year. In
addition, the case study example illustrates the possible cases where this frame-
work could be applied and the benefits to decision-maker beyond the traditional
NPV approach that would typically be used to evaluate this type of investment.
The proposed framework can help existing building stakeholders in evaluating
investment in sustainable building refurbishments and developing optimal
investment strategies. In the single-stage investment, the building stakeholders can
decide to postpone the investment until uncertainty is resolved. This will result in a
higher NPV
m
for the investment even when initially the traditional NPV is posi-
tive. For the multistage investment, the staging with the option to abandon pro-
vides a better opportunity as opposed to the case where the whole project is
contingent on the completion of all stages. Thus, the framework provides a good
alternative to the NPV approach when uncertainty is high, and the building
stakeholders want to incorporate more strategic investment opportunities in their
analysis. This additional knowledge would reduce uncertainty and make access to
the investment and debt capital necessary to refurbish the buildings more readily
available. If the uncertainties are satisfactorily managed and the benefits outweigh
the costs of a NZER building, stakeholders might be more interested in refur-
bishing their building portfolios. Given the special case NZER and its potential,
the industry and research community should work together to be able to unlock the
full potential of the NZER around the world.
Acknowledgments The authors would like to acknowledge the financial support for this work
received from the United States National Science Foundation (NSF) Grant NSF-CMMI-BRIGE
1125478. Any opinions and findings in this topic chapter are those of the authors and do not
necessarily represent those of NSF.
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