Investment appraisal in the public sector: Incorporating flexibility and environmental effects
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
The public sector often invests in large projects in different sectors, such as education, health care and infrastructure. It can be argued that investment appraisal process in these projects should differ from conventional approaches due to the complex interests the public sector holds, which often implies that several aspects need to be considered. Conventional techniques may not suffice and therefore this thesis aims to investigate the applicability of real options analysis and multi-criteria analysis in a combined approach. The study is conducted in the form of a case study at publicly owned Sundsvalls Logistikpark, where options in the form of the utilization of development areas and the non-monetary aspect reduction of carbon dioxide are included in the appraisal. The model developed compares two alternative strategies where one is based upon conventional usage of the area and the other represents the environmentally friendly alternative. The results show that including the value of flexibility in the appraisal significantly raises the initial valuation, whereas the comparison of the strategies show that the results either details which strategy is preferred, if input to both strategies are available, or where the threshold for indifference lies. It is concluded that this model is applicable in terms of its ability to capture the value of flexibility and inclusion of several aspects of the decision problem. However, it is also concluded that the numerous simplifications made may lead to unreliability in the results, and the process of obtaining accurate input may time-consuming, depending on the case. The usability of the model is high in terms of its potential, but lower in terms of the knowledge-based threshold required of the user.
Place, publisher, year, edition, pages
2015. , 65 p.
Real options, multi-criteria analysis, investment appraisal, public sector, project valuation, logistics park, intermodal transports.
IdentifiersURN: urn:nbn:se:miun:diva-25011OAI: oai:DiVA.org:miun-25011DiVA: diva2:815334
Master of Science in Industrial Engineering and Management TINDA 300 higher education credits