Search results

Surveys of capital budgeting practices in the UK and USA reveal a trend towards the increased use of more sophisticated investment appraisals requiring the application of discounted cash flow (DCF) techniques. Several writers, however, have claimed that companies are underinvesting because they misapply or misinterpret DCF techniques. Such claims have been made on the basis of observations in only a few companies, or anecdotal evidence, without any supporting statistical evidence. Reports on a recent survey conducted by the authors which suggests that many UK firms are guilty of misapplying DCF techniques. Also provides evidence relating to some issues that have not been thoroughly examined in previous studies, namely the impact of company size and the relative importance that firms attach to different investment appraisal techniques.

The impact of accelerating technological change in recent years has been to shorten the useful lifespan of many commercial buildings. Shorter income flows and increasing yields have resulted in a rapid descent towards site values. The response to changing investment circumstances such as this will first be reflected in the subjective investment appraisal, which will precede changes in reactive market valuation methodology. This paper presents and compares three alternative methods of appraisal which might allow explicit analysis of building depreciation. Treating the building element of property as a wasting asset akin to a leasehold is rejected for its simplistic assumptions and lack of flexibility. A cost based approach is similarly flawed. The recommended approach is an explicit cash flow projection which reflects the fact that rental growth will decline over a holding period, considering alternative resale prices based upon site value, value for refurbishment, or value if re‐let unimproved.

The purpose of this paper is to explore the current management perceptions regarding conflict within teams, specifically looking at capital investment appraisals, with the aim of improving team performance.

The research was undertaken in two stages. The first stage is based on a postal questionnaire survey relating to the appraisal of capital investments, addressed to large UK organisations. The second stage was conducted through semi-structured interviews, which were followed by a short-questionnaire sent out by e-mail, and designed from the information obtained from the interviews. The research is both qualitative and quantitative.

From the exploratory study, the author was able to identify and further investigate what the author’s respondents termed “personal” and “departmental” conflicts, as well as what the author perceived to be “good” (positive) conflict and “bad” (negative) conflict. The author finds that controlled “departmental” conflict may lead to enhanced decision making, while “personal” conflict may be destructive and lead to non-optimal decision making. The author also identified the importance of the investment appraisal “procedure” as distinct from the individual models used, and suggests that this is one way of controlling conflict within teams.

The research is limited by the fact that it is based on individual perceptions of a small sample number. However, the sample consists of some of the most senior executives from the largest UK organisations whose views are usually difficult to obtain by academics.

It provides senior managers with a comprehensive view, by their peers, and a better understanding of team conflict, especially with regard to “personal” and “departmental” conflicts; thus, allowing them to manage teams more efficiently in the future.

The research is unique in that it focusses on conflict within teams that are given the specific task of appraising capital projects and it theorises on what the respondents’ terms “departmental” and “personal” conflict. It brings up-to-date, managements’ current perception of team conflict and contributes to the ongoing search for a better understanding of conflict within business teams, and ultimately to an enhanced team performance and improved decision making.

This paper aims to investigate the flexible decision pathways adopted by development advisors in the management of uncertainty in property development. Specifically, the study examines the quantitative techniques adopted by development advisors, the level of adoption of real options analysis (ROA) vis-à-vis the level of adoption of heuristics. Finally, the types of options exercised in property development were analysed. This was with a view to providing information that could mitigate the challenges of risk and uncertainty and increasing investment failure associated with property development in Nigeria, an emerging market.

The study adopted a survey method and was conducted on development advisors in property development companies/estate surveying and valuation firms in Nigeria. A total of 195 development advisors participated in the survey. The respondents were required to rate, on a five-point Likert scale, the level of adoption of the quantitative models, heuristics and the types of flexibility exercised during development. The data were analysed using mean rating, one-sample t-test and analysis of variance.

The results revealed that there was a preference for the use of traditional techniques, while probabilistic appraisal models and other contemporary methods such as ROA are seldom adopted by development advisors. While there was a significantly high level of adoption of heuristics, the stratified analysis examining the profile of the respondents and the level of adoption of ROA and heuristics suggests that years of experience influenced the level of adoption of both the ROA and heuristics by the development advisors. The analysis of the types of flexibility showed that staging/phasing and changing the initial use/design were the most prevalent flexibility pathways adopted during the development. However, the study found that there was no significant difference concerning the choice of flexibility being adopted by development advisors who used ROA and those who did not.

The study provides an understanding of the decision pathways adopted by development advisors in an emerging market like Nigeria.

The paper contributes to studies on decision-making pathways in the management of uncertainty under dynamic conditions by development advisors in emerging markets.

The purpose of this paper is to investigate the current practices of large UK organisations with respect to post-audits of capital projects with the aim of improving management decision making in the future. The investment process has been clearly mapped out in the literature, with the initial project proposal, appraisal, selection (investment decision), implementation, completion, and finally the post-audit. It is this latter stage which is ignored by so many organisations and has received less attention in the academic literature, a gap the author hopes to fill.

The empirical data are collated from a postal questionnaire, semi-structured interviews, followed by a short e-mail questionnaire. A methodological triangulation of empirical data obtained from the questionnaires and interviews, were undertaken to overcome some of the deficiencies from just using one method of data collection. The research is empirical and uses exploratory descriptive analysis to interpret the findings. The author focuses on the aspect of organisational learning theory as a process of continuous improvement, learning from past experience, especially in the management decision-making paradigm.

The author discovered nine important reasons for undertaking post-audits and ten for not. An important observation is that while those organisations which do not undertake post-audits attach a greater level of importance to “the reasons for not carrying out post-audits” and “the problems faced in the implementation of post-audits”, these difficulties have been overcome by those organisations that undertake post-audits. Evidence suggests that the current change in business culture, as a result of the recent financial crisis, may be refocusing the aims of post-audits from a learning exercise to one of managerial responsibility.

The research may be limited (in forming general conclusions) as it is based on a relatively small sample size. The author does not, however, believe that this distracts from its importance.

The author argues that training the non-users to overcome the perceived difficulties would enhance the investment decision-making process by encouraging them to learn from the experience of those that undertake post-audits.

The research is original as it reports on a current survey and will fill, what the author perceives to be, a gap in the literature. The respondents to the research consists of some of the most senior executives from the largest UK organisations and their views on academic issues are, in many cases, difficult to obtain; this research therefore has value in this respect. The findings point the way to new lines of enquiry in this field.

Capital projects can be complex and offer strategical benefits that are difficult to quantify in financial terms and, as a result, are often left out of the appraisal process altogether. This paper highlights the inadequacy of the financial appraisal models to capture many of these strategic benefits, and reviews various approaches and strategic models currently used in practice. It argues the case for the adoption of a management team approach, focusing on judgmental values, to the identification and evaluation of a project's strategic benefits. The paper concludes by looking at the strategic index (SI) which was developed to identify and evaluate project strategic benefits. The procedure to arrive at the SI has been designed to extract “accurate” judgmental values and to formalise, in a structured way, what would otherwise be an unstructured and complex problem, linking project selection to business strategy. This procedure, to some extent, adopts a “systems thinking” type of process of inquiry, making use of experience‐based knowledge.

Publishes some of the findings of a research project that examined whether valuers and valuations have a role in the provision of more strategic property advice to business occupiers. The research consisted of a postal questionnaire survey of over 250 businesses that examined the role of property and the use of valuations in strategic business decisions. The survey was supported by the findings from 18 structured interviews and an analysis of over 70 sets of company accounts. The results revealed that, despite valuers becoming increasingly involved in measuring corporate efficiency and valuations being used for this purpose, business occupiers do not recognise valuers in a strategic role. Instead, many firms see valuers as providing a single valuation service, the estimation of market value for purchase/sale decisions and corporate disclosure. The research suggests that valuations do have a role to play in the provision of more strategic business advice but the valuer will need to understand the client’s wider business needs and how property plays a part in the client’s business. Valuers need to convince clients that they are not overly technical in their outlook, have broad business skills that include strategic thinking and an awareness of business issues.

The purpose of this paper is to apply a numerical simulation of stochastic processes to the problem of real estate investment appraisal.

These uncertain operating costs are integrated into an enhanced dynamic simulation. To model the dynamics in the uncertainty of the cost schedule, a range of different types of stochastic processes is used. The operating costs are classified by cost drivers and an appropriate stochastic process is determined for each of the derived cost clusters. To optimise the capital structure in this application, heuristic optimisation with genetic algorithms is used.

The application of the model to real world investment situations shows that linear and deterministic modelling underestimates the risk‐generating effect of uncertain operating expenses, which often can lead to inefficient investment decisions.

In a further application of the model, the authors demonstrate the effect of uncertain operating costs on the optimal capital structure of real estate investments.

In contrast to models in the literature that are usually focussed on the income side, here the focus is on the uncertain dynamics of real estate operating costs as a key factor affecting return.

Argues that as opportunities arise for companies to exploit new markets, a critical issue is how firms should be organized to cope with innovation and competition in a fast moving business environment. Suggests changes to organizational procedures with the potential to deal with complex investment decisions better. Based on theory, surveys and practice, these include changes to the traditional role of financial analysis, extending the capital investment process to one which combines strategic and financial management considerations. Puts forward a set of criteria which should be met once advanced manufacturing technology practices have been recognized.