Byungil Kim

A Real Option Perspective to Value the Multi-Stage Construction of Rainwater Harvesting Systems Reusing Septic Tank

Recently, rainwater harvesting systems have received increased attention due to their capability for adapting to water scarcity and climate change. However, a key obstacle to the implementation of rainwater harvesting systems is that they are often not financially feasible given difficulty in determining optimal system size. A key premise of previous studies was that all rainwater harvesting systems are constructed in a single construction event even though it is possible to construct a system in multiple stages. This assumption limits managerial flexibility in the construction of rainwater harvesting systems, which is particularly valuable in scenarios where it is difficult to forecast future rainfall patterns. Therefore, we propose a multi-stage system expansion strategy for the implementation of rainwater harvesting systems using decommissioned septic tanks under scenarios of uncertainty in rainfall from a real option perspective as a means to improve the financial feasibility of implementing rainwater harvesting systems. We tested this strategy by evaluating a proposed rainwater harvesting system for a midsize apartment complex in Jeonju, South Korea. The multi-stage expansion strategy generated an option value of 9,896 USD. This study will help to improve the financial feasibility of rainwater harvesting systems by adding the value of managerial flexibility through a sequential expansion of RWH systems as new information becomes available.

Critical Success Factors for Wind Power Projects

Climate changes caused by fossil fuel energy usages have led to serious environmental damages and resource scarcity. Ever-increasing demand for energy causes harsh competition in international energy markets. Nuclear power, which once was regarded as a desirable clean energy, began to face public oppositions after the Japanese nuclear disaster in 2011. In this context, wind power is now considered to be an ever-more important recyclable energy source. Thus, this study intended to identify critical success factors for wind power construction projects. After a thorough literature review, two focus group interview sessions were conducted. A questionnaire-based survey, coupled with the two previous methods, resulted in the extraction of important factors for the success of wind power projects. Experts, including those working as constructors, designers, and owners, were paid a direct visit for the interview and survey. The critical success factors were categorized into feasibility study, right policies, equipment selection, and project financing issues. The proposed critical success factors are expected to be an effective guideline for future investors in wind powers.

A resilience loss assessment framework for evaluating flood-control dam safety upgrades

Dams that were designed and built decades ago may not meet current design standards that reflect our improved knowledge of extreme rainfall events. When comparing dam safety upgrades, cost-efficient options that reduce the probability of overtopping are preferred. However, these criteria neglect flood damage costs resulting from controlled water flow inherent to the design of the safety upgrades. Therefore, to address this shortcoming, we apply the concept of resilience to evaluate dam safety upgrade options from a flood damage mitigation perspective through a resilience assessment framework. In this study, resilience is defined as the ability to provide flood-control service after an extreme rainfall event and to recover a desired level of functionality as soon as practicable. This framework features four main steps: estimating the probable maximum flood for the dam under investigation, calculating the dam discharge for each of the upgrade options, quantifying the loss in system resilience, and converting the losses into monetary units. This framework is applied to two dam safety upgrade options (constructing an emergency spillway and increasing dam crest height) for a large dam in Andong, South Korea. In practice, the former option is typically preferred as it is cost-efficient. However, we find that the latter option is superior when accounting for flood damage costs caused by water that is intentionally released from the dam during a probable maximum flood event. This study will help to ensure sound decision making when evaluating dam safety upgrade options by considering not only construction costs but also flood damage costs.

Supporting Market Entry Decisions for Global Expansion Using Real Option + Scenario Planning Analysis

The world has witnessed the dramatic expansion of international construction markets during the last decades, particularly around the developing economies and energy resource-rich countries. However, despite the booming markets, the risks of emerging regions have also increased under the rapidly changing environments confronting global contractors. Most of all, success in overseas business mainly depends on selecting a right market to enter. Accordingly, the right market selection requires global firms to carefully carry out the scientific market entry decision by evaluating country risks, market prospects, firms capability, level of competition, and among others. This study aims at developing a market entry model by the use of real option analysis (ROA) and scenario planning, which places emphasize on firms strategic flexibility against uncertainties encompassing the overseas construction markets. Based on the suggested approach, global contractors are expected to make a better decision rather than a widely used static NPV approach in pursuing, postponing, or abandoning a prospective market to their capacity with a consideration of uncertainties as well as its flexible option value.

An Analysis on the Role of Organizational Innovation for Enhancing Firms' Innovation Performance: Focusing on the Manufacturing Industry in South Korea

It is increasingly becoming important for firms to innovate, because technological developments are changing quickly and environmental uncertainties are increasing. A firm needs to achieve innovation to maintain sustainable competitive advantage, unlike other firms. Even though the type of innovations is largely divided into product innovation, process innovation, organizational innovation, and marketing innovation, however, it is lacking to consider causal relationships. Therefore, this study investigates the relationships among four innovations to enhance firms innovation performance through Korean Innovation Survey (KIS) data of Science and Technology Policy Institute (STEPI). Especially, firms will have to perform organizational innovation before other innovations as it changes their internal routines. The results show that organizational innovation is positively associated with innovation performance (process innovation and marketing innovation), except for product innovation. This study confirms causal relationships among four innovations, and we suggest the importance of organizational innovation. Firms have to consider the role of organizational innovation when they perform innovation activities in the future.

The relationship between open innovation and innovation performance: Focused on the firms in South Korea

Recently, because the environment is changing very rapidly and becomes complex, it is difficult for a firm to survive and maintain a sustainable competitive advantage through internal R&D. Accordingly, the importance of open innovation is emphasized, and the ratio of external R&D in various industries has been increasing steadily.

A Real Option Perspective to Evaluate Purchase Decisions of Construction Materials with High Price Volatility

Decision-making in construction projects often include options features. Such embedded options are difficult to value properly and many decision makers do not have experience in option analysis. The purpose of this paper is to demonstrate how real option analysis can be used to value capital expenditures on construction materials. We propose a real option framework to evaluate decision-making processes involving the purchase of construction materials. A case study was conducted by evaluating the purchase decision-making of solar cells, a good with high price volatility. Using real option analysis two strategies to improve the financial feasibility of installing a solar panel system were derived. The first strategy involves using a price cap that gives the project manager the right, but not obligation, to buy the modules for a predefined price during the next year. The second strategy is to defer the purchase of the solar cells until future price information becomes clearer. Both of the strategies in the case study were valued using the binominal model. This study will help to improve the financial feasibility of purchasing construction materials with high price volatility by including the value of managerial flexibility.