Property cash flow studies : focusing on model consistency and data accuracy

The high degree of variability and inconsistency in cash flow study usage by property professionals demands improvement in knowledge and processes. Until recently limited research was being undertaken on the use of cash flow studies in property valuations but the growing acceptance of this approach for major investment valuations has resulted in renewed interest in this topic. Studies on valuation variations identify data accuracy, model consistency and bias as major concerns. In cash flow studies there are practical problems with the input data and the consistency of the models. This study will refer to the recent literature and identify the major factors in model inconsistency and data selection. A detailed case study will be used to examine the effects of changes in structure and inputs. The key variable inputs will be identified and proposals developed to improve the selection process for these key variables. The variables will be selected with the aid of sensitivity studies and alternative ways of quantifying the key variables explained. The paper recommends, with reservations, the use of probability profiles of the variables and the incorporation of this data in simulation exercises. The use of Monte Carlo simulation is demonstrated and the factors influencing the structure of the probability distributions of the key variables are outline. This study relates to ongoing research into functional performance of commercial property within an Australian Cooperative Research Centre.

Some Remarks on the Approximation of Transitional Density in Stochastic Differential Equations

Aijt-Sahalia (2002) introduced a method to estimate transitional probability densities of di®usion processes by means of Hermite expansions with coe±cients determined by means of Taylor series. This note describes a numerical procedure to ¯nd these coe±cients based on the calculation of moments. One advantage of this procedure is that it can be used e®ectively when the mathematical operations required to ¯nd closed-form expressions for these coe±cients are otherwise infeasible.

Radiobiological model comparison of 3D conformal radiotherapy and IMRT plans for the treatment of prostate cancer

The main aim of radiotherapy is to deliver a dose of radiation that is high enough to destroy the tumour cells while at the same time minimising the damage to normal healthy tissues. Clinically, this has been achieved by assigning a prescription dose to the tumour volume and a set of dose constraints on critical structures. Once an optimal treatment plan has been achieved the dosimetry is assessed using the physical parameters of dose and volume. There has been an interest in using radiobiological parameters to evaluate and predict the outcome of a treatment plan in terms of both a tumour control probability (TCP) and a normal tissue complication probability (NTCP). In this study, simple radiobiological models that are available in a commercial treatment planning system were used to compare three dimensional conformal radiotherapy treatments (3D-CRT) and intensity modulated radiotherapy (IMRT) treatments of the prostate. Initially both 3D-CRT and IMRT were planned for 2 Gy/fraction to a total dose of 60 Gy to the prostate. The sensitivity of the TCP and the NTCP to both conventional dose escalation and hypo-fractionation was investigated. The biological responses were calculated using the Källman S-model. The complication free tumour control probability (P+) is generated from the combined NTCP and TCP response values. It has been suggested that the alpha/beta ratio for prostate carcinoma cells may be lower than for most other tumour cell types. The effect of this on the modelled biological response for the different fractionation schedules was also investigated.

Music purchase behaviour : the effect of emotional loyalty on intention to purchase.

This paper explores the influence of emotional loyalty on music purchase behaviour. Specifically, it examines whether emotional attachment to an artist's music influences loyalty to that artist, and how emotional loyalty influences a consumer's decision to purchase music. Data collection involved fifteen semi-structured interviews with young (18-30) subjects recruited through non-probability convenience sampling. Findings show that consumers who are emotionally loyal to an artistes) are more inclined to purchase the music rather than download free of charge.

Error, Bias, and Long-Branch Attraction in Data for Two Chloroplast Photosystem Genes in Seed Plants

Sequences of two chloroplast photosystem genes, psaA and psbB, together comprising about 3,500 bp, were obtained for all five major groups of extant seed plants and several outgroups among other vascular plants. Strongly supported, but significantly conflicting, phylogenetic signals were obtained in parsimony analyses from partitions of the data into first and second codon positions versus third positions. In the former, both genes agreed on a monophyletic gymnosperms, with Gnetales closely related to certain conifers. In the latter, Gnetales are inferred to be the sister group of all other seed plants, with gymnosperms paraphyletic. None of the data supported the modern ‘‘anthophyte hypothesis,’’ which places Gnetales as the sister group of flowering plants. A series of simulation studies were undertaken to examine the error rate for parsimony inference. Three kinds of errors were examined: random error, systematic bias (both properties of finite data sets), and statistical inconsistency owing to long-branch attraction (an asymptotic property). Parsimony reconstructions were extremely biased for third-position data for psbB. Regardless of the true underlying tree, a tree in which Gnetales are sister to all other seed plants was likely to be reconstructed for these data. None of the combinations of genes or partitions permits the anthophyte tree to be reconstructed with high probability. Simulations of progressively larger data sets indicate the existence of long-branch attraction (statistical inconsistency) for third-position psbB data if either the anthophyte tree or the gymnosperm tree is correct. This is also true for the anthophyte tree using either psaA third positions or psbB first and second positions. A factor contributing to bias and inconsistency is extremely short branches at the base of the seed plant radiation, coupled with extremely high rates in Gnetales and nonseed plant outgroups. M. J. Sanderson,* M. F. Wojciechowski,*† J.-M. Hu,* T. Sher Khan,* and S. G. Brady

A multi-hypothesis topological SLAM approach for loop closing on edge-ordered graphs

We present a method for topological SLAM that specifically targets loop closing for edge-ordered graphs. Instead of using a heuristic approach to accept or reject loop closing, we propose a probabilistically grounded multi-hypothesis technique that relies on the incremental construction of a map/state hypothesis tree. Loop closing is introduced automatically within the tree expansion, and likely hypotheses are chosen based on their posterior probability after a sequence of sensor measurements. Careful pruning of the hypothesis tree keeps the growing number of hypotheses under control and a recursive formulation reduces storage and computational costs. Experiments are used to validate the approach.

Investment decision-making under risk (reliability) and uncertainty for infrastructure asset management

Risks and uncertainties are inevitable in engineering projects and infrastructure investments. Decisions about investment in infrastructure such as for maintenance, rehabilitation and construction works can pose risks, and may generate significant impacts on social, cultural, environmental and other related issues. This report presents the results of a literature review of current practice in identifying, quantifying and managing risks and predicting impacts as part of the planning and assessment process for infrastructure investment proposals. In assessing proposals for investment in infrastructure, it is necessary to consider social, cultural and environmental risks and impacts to the overall community, as well as financial risks to the investor. The report defines and explains the concept of risk and uncertainty, and describes the three main methodology approaches to the analysis of risk and uncertainty in investment planning for infrastructure, viz examining a range of scenarios or options, sensitivity analysis, and a statistical probability approach, listed here in order of increasing merit and complexity. Forecasts of costs, benefits and community impacts of infrastructure are recognised as central aspects of developing and assessing investment proposals. Increasingly complex modelling techniques are being used for investment evaluation. The literature review identified forecasting errors as the major cause of risk. The report contains a summary of the broad nature of decision-making tools used by governments and other organisations in Australia, New Zealand, Europe and North America, and shows their overall approach to risk assessment in assessing public infrastructure proposals. While there are established techniques to quantify financial and economic risks, quantification is far less developed for political, social and environmental risks and impacts. The report contains a summary of the broad nature of decision-making tools used by governments and other organisations in Australia, New Zealand, Europe and North America, and shows their overall approach to risk assessment in assessing public infrastructure proposals. While there are established techniques to quantify financial and economic risks, quantification is far less developed for political, social and environmental risks and impacts. For risks that cannot be readily quantified, assessment techniques commonly include classification or rating systems for likelihood and consequence. The report outlines the system used by the Australian Defence Organisation and in the Australian Standard on risk management. After each risk is identified and quantified or rated, consideration can be given to reducing the risk, and managing any remaining risk as part of the scope of the project. The literature review identified use of risk mapping techniques by a North American chemical company and by the Australian Defence Organisation. This literature review has enabled a risk assessment strategy to be developed, and will underpin an examination of the feasibility of developing a risk assessment capability using a probability approach.

Evaluation of functional performance in commercial buildings

This report fully summarises a project designed to enhance commercial real estate performance within both operational and investment contexts through the development of a model aimed at supporting improved decision-making. The model is based on a risk adjusted discounted cash flow, providing a valuable toolkit for building managers, owners, and potential investors for evaluating individual building performance in terms of financial, social and environmental criteria over the complete life-cycle of the asset. The ‘triple bottom line’ approach to the evaluation of commercial property has much significance for the administrators of public property portfolios in particular. It also has applications more generally for the wider real estate industry given that the advent of ‘green’ construction requires new methods for evaluating both new and existing building stocks. The research is unique in that it focuses on the accuracy of the input variables required for the model. These key variables were largely determined by market-based research and an extensive literature review, and have been fine-tuned with extensive testing. In essence, the project has considered probability-based risk analysis techniques that required market-based assessment. The projections listed in the partner engineers’ building audit reports of the four case study buildings were fed into the property evaluation model developed by the research team. The results are strongly consistent with previously existing, less robust evaluation techniques. And importantly, this model pioneers an approach for taking full account of the triple bottom line, establishing a benchmark for related research to follow. The project’s industry partners expressed a high degree of satisfaction with the project outcomes at a recent demonstration seminar. The project in its existing form has not been geared towards commercial applications but it is anticipated that QDPW and other industry partners will benefit greatly by using this tool for the performance evaluation of property assets. The project met the objectives of the original proposal as well as all the specified milestones. The project has been completed within budget and on time. This research project has achieved the objective by establishing research foci on the model structure, the key input variable identification, the drivers of the relevant property markets, the determinants of the key variables (Research Engine no.1), the examination of risk measurement, the incorporation of risk simulation exercises (Research Engine no.2), the importance of both environmental and social factors and, finally the impact of the triple bottom line measures on the asset (Research Engine no. 3).

Whole of life cycle cost analysis in bridge rehabilitation

The report presents a methodology for whole of life cycle cost analysis of alternative treatment options for bridge structures, which require rehabilitation. The methodology has been developed after a review of current methods and establishing that a life cycle analysis based on a probabilistic risk approach has many advantages including the essential ability to consider variability of input parameters. The input parameters for the analysis are identified as initial cost, maintenance, monitoring and repair cost, user cost and failure cost. The methodology utilizes the advanced simulation technique of Monte Carlo simulation to combine a number of probability distributions to establish the distribution of whole of life cycle cost. In performing the simulation, the need for a powerful software package, which would work with spreadsheet program, has been identified. After exploring several products on the market, @RISK software has been selected for the simulation. In conclusion, the report presents a typical decision making scenario considering two alternative treatment options.

Drivers of technology substitution : successive generations of high tech products

Principal Topic High technology consumer products such as notebooks, digital cameras and DVD players are not introduced into a vacuum. Consumer experience with related earlier generation technologies, such as PCs, film cameras and VCRs, and the installed base of these products strongly impacts the market diffusion of the new generation products. Yet technology substitution has received only sparse attention in the diffusion of innovation literature. Research for consumer durables has been dominated by studies of (first purchase) adoption (c.f. Bass 1969) which do not explicitly consider the presence of an existing product/technology. More recently, considerable attention has also been given to replacement purchases (c.f. Kamakura and Balasubramanian 1987). Only a handful of papers explicitly deal with the diffusion of technology/product substitutes (e.g. Norton and Bass, 1987: Bass and Bass, 2004). They propose diffusion-type aggregate-level sales models that are used to forecast the overall sales for successive generations. Lacking household data, these aggregate models are unable to give insights into the decisions by individual households - whether to adopt generation II, and if so, when and why. This paper makes two contributions. It is the first large-scale empirical study that collects household data for successive generations of technologies in an effort to understand the drivers of adoption. Second, in comparision to traditional analysis that evaluates technology substitution as an ''adoption of innovation'' type process, we propose that from a consumer's perspective, technology substitution combines elements of both adoption (adopting the new generation technology) and replacement (replacing the generation I product with generation II). Based on this proposition, we develop and test a number of hypotheses. Methodology/Key Propositions In some cases, successive generations are clear ''substitutes'' for the earlier generation, in that they have almost identical functionality. For example, successive generations of PCs Pentium I to II to III or flat screen TV substituting for colour TV. More commonly, however, the new technology (generation II) is a ''partial substitute'' for existing technology (generation I). For example, digital cameras substitute for film-based cameras in the sense that they perform the same core function of taking photographs. They have some additional attributes of easier copying and sharing of images. However, the attribute of image quality is inferior. In cases of partial substitution, some consumers will purchase generation II products as substitutes for their generation I product, while other consumers will purchase generation II products as additional products to be used as well as their generation I product. We propose that substitute generation II purchases combine elements of both adoption and replacement, but additional generation II purchases are solely adoption-driven process. Extensive research on innovation adoption has consistently shown consumer innovativeness is the most important consumer characteristic that drives adoption timing (Goldsmith et al. 1995; Gielens and Steenkamp 2007). Hence, we expect consumer innovativeness also to influence both additional and substitute generation II purchases. Hypothesis 1a) More innovative households will make additional generation II purchases earlier. 1 b) More innovative households will make substitute generation II purchases earlier. 1 c) Consumer innovativeness will have a stronger impact on additional generation II purchases than on substitute generation II purchases. As outlined above, substitute generation II purchases act, in part like a replacement purchase for the generation I product. Prior research (Bayus 1991; Grewal et al 2004) identified product age as the most dominant factor influencing replacements. Hence, we hypothesise that: Hypothesis 2: Households with older generation I products will make substitute generation II purchases earlier. Our survey of 8,077 households investigates their adoption of two new generation products: notebooks as a technology change to PCs, and DVD players as a technology shift from VCRs. We employ Cox hazard modelling to study factors influencing the timing of a household's adoption of generation II products. We determine whether this is an additional or substitute purchase by asking whether the generation I product is still used. A separate hazard model is conducted for additional and substitute purchases. Consumer Innovativeness is measured as domain innovativeness adapted from the scales of Goldsmith and Hofacker (1991) and Flynn et al. (1996). The age of the generation I product is calculated based on the most recent household purchase of that product. Control variables include age, size and income of household, and age and education of primary decision-maker. Results and Implications Our preliminary results confirm both our hypotheses. Consumer innovativeness has a strong influence on both additional purchases (exp = 1.11) and substitute purchases (exp = 1.09). Exp is interpreted as the increased probability of purchase for an increase of 1.0 on a 7-point innovativeness scale. Also consistent with our hypotheses, the age of the generation I product has a dramatic influence for substitute purchases of VCR/DVD (exp = 2.92) and a strong influence for PCs/notebooks (exp = 1.30). Exp is interpreted as the increased probability of purchase for an increase of 10 years in the age of the generation I product. Yet, also as hypothesised, there was no influence on additional purchases. The results lead to two key implications. First, there is a clear distinction between additional and substitute purchases of generation II products, each with different drivers. Treating these as a single process will mask the true drivers of adoption. For substitute purchases, product age is a key driver. Hence, implications for marketers of high technology products can utilise data on generation I product age (e.g. from warranty or loyalty programs) to target customers who are more likely to make a purchase.

Report : review of the literature : maintenance and rehabilitation costs for roads (Risk-based Analysis)

Realistic estimates of short- and long-term (strategic) budgets for maintenance and rehabilitation of road assessment management should consider the stochastic characteristics of asset conditions of the road networks so that the overall variability of road asset data conditions is taken into account. The probability theory has been used for assessing life-cycle costs for bridge infrastructures by Kong and Frangopol (2003), Zayed et.al. (2002), Kong and Frangopol (2003), Liu and Frangopol (2004), Noortwijk and Frangopol (2004), Novick (1993). Salem 2003 cited the importance of the collection and analysis of existing data on total costs for all life-cycle phases of existing infrastructure, including bridges, road etc., and the use of realistic methods for calculating the probable useful life of these infrastructures (Salem et. al. 2003). Zayed et. al. (2002) reported conflicting results in life-cycle cost analysis using deterministic and stochastic methods. Frangopol et. al. 2001 suggested that additional research was required to develop better life-cycle models and tools to quantify risks, and benefits associated with infrastructures. It is evident from the review of the literature that there is very limited information on the methodology that uses the stochastic characteristics of asset condition data for assessing budgets/costs for road maintenance and rehabilitation (Abaza 2002, Salem et. al. 2003, Zhao, et. al. 2004). Due to this limited information in the research literature, this report will describe and summarise the methodologies presented by each publication and also suggest a methodology for the current research project funded under the Cooperative Research Centre for Construction Innovation CRC CI project no 2003-029-C.

Report : stochastic analysis of road asset data for maintenance cost prediction

Reliable budget/cost estimates for road maintenance and rehabilitation are subjected to uncertainties and variability in road asset condition and characteristics of road users. The CRC CI research project 2003-029-C ‘Maintenance Cost Prediction for Road’ developed a method for assessing variation and reliability in budget/cost estimates for road maintenance and rehabilitation. The method is based on probability-based reliable theory and statistical method. The next stage of the current project is to apply the developed method to predict maintenance/rehabilitation budgets/costs of large networks for strategic investment. The first task is to assess the variability of road data. This report presents initial results of the analysis in assessing the variability of road data. A case study of the analysis for dry non reactive soil is presented to demonstrate the concept in analysing the variability of road data for large road networks. In assessing the variability of road data, large road networks were categorised into categories with common characteristics according to soil and climatic conditions, pavement conditions, pavement types, surface types and annual average daily traffic. The probability distributions, statistical means, and standard deviation values of asset conditions and annual average daily traffic for each type were quantified. The probability distributions and the statistical information obtained in this analysis will be used to asset the variation and reliability in budget/cost estimates in later stage. Generally, we usually used mean values of asset data of each category as input values for investment analysis. The variability of asset data in each category is not taken into account. This analysis method demonstrated that it can be used for practical application taking into account the variability of road data in analysing large road networks for maintenance/rehabilitation investment analysis.

Identification of critical input variables for risk-based cost estimates for road maintenance and rehabilitation

An estimation of costs for maintenance and rehabilitation is subject to variation due to the uncertainties of input parameters. This paper presents the results of an analysis to identify input parameters that affect the prediction of variation in road deterioration. Road data obtained from 1688 km of a national highway located in the tropical northeast of Queensland in Australia were used in the analysis. Data were analysed using a probability-based method, the Monte Carlo simulation technique and HDM-4’s roughness prediction model. The results of the analysis indicated that among the input parameters the variability of pavement strength, rut depth, annual equivalent axle load and initial roughness affected the variability of the predicted roughness. The second part of the paper presents an analysis to assess the variation in cost estimates due to the variability of the overall identified critical input parameters.

Optimal allocation of a cross-connection and sectionalizers in distribution systems

In this paper, the placement of sectionalizers, as well as, a cross-connection is optimally determined so that the objective function is minimized. The objective function employed in this paper consists of two main parts, the switch cost and the reliability cost. The switch cost is composed of the cost of sectionalizers and cross-connection and the reliability cost is assumed to be proportional to a reliability index, SAIDI. To optimize the allocation of sectionalizers and cross-connection problem realistically, the cost related to each element is considered as discrete. In consequence of binary variables for the availability of sectionalizers, the problem is extremely discrete. Therefore, the probability of local minimum risk is high and a heuristic-based optimization method is needed. A Discrete Particle Swarm Optimization (DPSO) is employed in this paper to deal with this discrete problem. Finally, a testing distribution system is used to validate the proposed method.