David G. Carmichael

Probabilistic DCF Analysis and Capital Budgeting and Investment—a Survey

The article surveys contributions to the literature covering the field of probabilistic discounted cash flow (DCF) analysis of individual capital investments from the earliest contributions of the 1960s to today. Such analysis includes the methods of present worth (net present value), annual worth, future worth, internal rate of return, payback period, and benefit:cost ratio. The history and development of the probabilistic case is traced, listing the main assumptions made and any restrictions to applications. The survey will be found useful by those engaged in risk management and decisions associated with investments and budgeting having uncertain outcomes.

A review of building/infrastructure sustainability reporting tools (SRTs)

Purpose – Buildings/infrastructure are recognised to have a significant impact on the environment and the community, and hence there is pressure on industry practitioners to incorporate environmental and social considerations in addition to the traditional cost, time and quality. The development of sustainability reporting tools (SRTs) to assist in the management of “green” building/infrastructure projects is pivotal in informing on progress in sustainability practices. However, the rapid growth of SRTs in the last decade, with different criteria and methodology, has created complications for stakeholders. Design/methodology/approach – The paper provides a comprehensive review of tools to guide practitioners, property investors, policy makers and developers towards making informed choices in “green” building/infrastructure projects. Comparative analyses, benefits and limitations of these tools are discussed in the paper. Findings – Some of the findings from the analysis of SRTs include: an emphasis on env...

The relationship between sustainability practices and financial performance of construction companies

Purpose – Over recent years, a number of companies have committed to sharing information relating to their environmental, social and governance (ESG) activities, in response to a higher demand for transparency from stakeholders. This paper aims to explore the impact of such reporting on the financial performance of construction companies.Design/methodology/approach – This paper first examines the state of non‐financial reporting of publicly‐listed construction companies on climate change, environmental management, environmental efficiency, health and safety, human capital, conduct, stakeholder engagement, governance and other matters deemed to be of concern to institutional investors. It then presents the results of an empirical study on the impact of issuing non‐financial reports and the extent of companies’ sustainability practices (represented by ESG scores) on the financial performance of the companies. Financial performance is measured via a range of financial ratios.Findings – The paper finds that a...

Comparative performance of publicly listed construction companies: Australian evidence

Understanding the performance of publicly listed Australian construction companies, in comparison with other Australian listed companies, is vital to the construction sector’s continuous access to capital from the public equity market. Evidence on the performance of construction companies that do business in building and/or civil infrastructure is presented and compared with the Australian All Ordinaries Index and a portfolio of publicly listed (blue chip) companies. Using fundamental analysis, a comprehensive assessment on a range of financial and performance indicators is provided (including share prices, equity valuation multiples and profitability ratios) over the 10‐year period, 1998 to 2007. The results show that, apart from the period when the Goods and Services Tax was introduced in 2000, the performance of publicly listed Australian construction companies in most of the indicators assessed is comparable to the largest traded shares on the Australian Securities Exchange. The empirical evidence is encouraging and could potentially elicit interest and confidence for investors to invest in construction companies.

Minimum Operational Emissions in Earthmoving

The paper explores minimum emission configurations in earthmoving and like operations, including quarrying and open-cut mining. Emissions data, based on field observations and available in the public literature, are used to derive operation configurations that lead to minimum emissions. Such configurations are compared with conventional minimum cost solutions in order to give guidance as to the best way to configure and manage earthmoving operations. Variables considered in the analyses performed include truck fleet size, truck capacity and loading, loader capacity and haul route parameters. It can be shown for certain assumptions and configurations that the minimum emissions per production solution coincides with the minimum cost per production solution. In such circumstances, managing earthmoving, quarrying and open-cut mining operations in conventional costefficient ways leads to least emissions; it also follows that not managing such operations in a cost-efficient way will lead to unnecessary emissions. The papers derivations are original and will be of interest to those designing and managing earthmoving, quarrying and open-cut mining operations, particularly with reference to sustainability.

An Alternative Approach to Capital Investment Appraisal

The article presents an alternative and original method for establishing the present worth and feasibility of a capital investment where the underlying parameters of interest/discount rate, cash flows. and investment lifespan are uncertain. The method, based on Markov chains, complements existing and useful practices such as sensitivity analysis, Monte Carlo simulation, Hillier-style probabilistic analysis, and fuzzy sets. For the same underlying assumptions, the results of this alternative approach are the same as for these existing approaches, but the approach provides additional insight into discounted cash flow (DCF) analysis under uncertainty. The method will be found useful to persons doing investment analysis and looking at the risks associated with investment.

Real Options Estimate Using Probabilistic Present Worth Analysis

The article presents a method for estimating the value of a real option using probabilistic present worth analysis. The method is shown to capture the upside value of a real option in an equivalent way as—and provide similar results to— the Black-Scholes method. Its strength lies in its intuitive appeal, the avoidance of having to estimate volatility, relaxed assumptions, and the simplicity of the underlying calculations. A comparison with the Black-Scholes method is undertaken in structural terms, with differences noted, and numerically for a range of input parameters. The proposed method is also applicable to evaluating financial options.

Shovel–truck queues: a reconciliation of theory and practice

Queueing theory offers the prospect of a useful management and planning tool for shovel-truck type operations; it is conceptually and intuitively satisfying as a model while being able to be transformed into a form usable by practising engineers. It remains to fully examine the assumptions on which queueing theory is based in the light of available field measurements. The paper answers questions relating to the assumptions on the service discipline, on steady-state behaviour and on the probability distributions for the backcycle and service times.

Surface mining operations: coincident unit cost and emissions

Traditionally, surface mining has been organised based on a minimum unit cost criterion. However, there is an increasing awareness for the need to reduce carbon emissions due to their negative environmental impacts. This paper explores the relationship between the optimal unit cost surface mining operation and the optimal unit emissions operation. It examines the influence of a range of operation parameters including truck size, payload, fuel use and travel and load times. It is demonstrated theoretically that the optima with respect to unit cost and unit emissions coincide, and this coincidence is invariant on changing operation parameters. To support the theoretical result, data from an extensive field study are used, including time and production measurements, and collected fuel burn data and its conversion to emissions. The paper’s findings will be of interest to those involved in designing and managing surface mining, and similar operations such as quarrying and earthmoving.

A contractor's analysis of the likelihood of payment of claims

Purpose – The purpose of this paper is to present an original model, and one of practical use, for a contractors internal analysis of the likelihood of late and incomplete payments, in an uncertain payment environment. Payments typically dominate the thinking of a contractor and the way a contractor operates. The model applies equally to subcontractors, suppliers and consultants.Design/methodology/approach – The model is based on Markov chains, specially adapted to the problem, where the states are defined as the period of time by which the payment is overdue. In addition, there are special states corresponding to claims that have been paid, and those that need resolution. Transitions between states reflect the payment characteristics on the project (which itself depends on the type of project and the owner‐contractor relationship).Findings – Real project data confirm the validity of the model. Output from the model can be shown to agree with actual contractor payment data. The output is in terms of prob...