Financial incentives and advanced construction procurement systems

Construction clients often use financial incentives to encourage stakeholder motivation and commitment to voluntary higher-order project goals. Despite the increased use of financial incentives, there is little literature addressing means of optimizing outcomes. Using a case study methodology, the examination of a successful Australian construction project demonstrates the features of a positively geared procurement approach that promotes the effectiveness of financial incentives. The research results show that if the incentive system is perceived to be fair and is applied to reward exceptional performance, and not to manipulate, then contractors are more likely to be positively motivated.

Attractiveness of venture ideas : a conjoint study

Principal Topic : According to Shane & Venkataraman (2000) entrepreneurship consists of the recognition and exploitation of venture ideas - or opportunities as they often called - to create future goods and services. This definition puts venture ideas is at the heart of entrepreneurship research. Substantial research has been done on venture ideas in order to enhance our understanding of this phenomenon (e.g. Choi & Shepherd, 2004; Shane, 2000; Shepherd & DeTienne, 2005). However, we are yet to learn what factors drive entrepreneurs' perceptions of the relative attractiveness of venture ideas, and how important different idea characteristics are for such assessments. Ruef (2002) recognized that there is an uneven distribution of venture ideas undertaken by entrepreneurs in the USA. A majority introduce either a new product/service or access a new market or market segment. A smaller percentage of entrepreneurs introduce a new method of production, organizing, or distribution. This implies that some forms of venture ideas are perceived by entrepreneurs as more important or valuable than others. However, Ruef does not provide any information regarding why some forms of venture ideas are more common than others among entrepreneurs. Therefore, this study empirically investigates what factors affect the attractiveness of venture ideas as well as their relative importance. Based on two key characteristics of venture ideas, namely venture idea newness and relatedness, our study investigates how different types and degrees of newness and relatedness of venture ideas affect their attractiveness as perceived by expert entrepreneurs. Methodology/Key : Propositions According to Schumpeter (1934) entrepreneurs introduce different types of venture ideas such as new products/services, new method of production, enter into new markets/customer and new method of promotion. Further, according to Schumpeter (1934) and Kirzner (1973) venture ideas introduced to the market range along a continuum of innovative to imitative ideas. The distinction between these two extremes of venture idea highlights an important property of venture idea, namely their newness. Entrepreneurs, in order to gain competitive advantage or above average returns introduce their venture ideas which may be either new to the world, new to the market that they seek to enter, substantially improved from current offerings and an imitative form of existing offerings. Expert entrepreneurs may be more attracted to venture ideas that exhibit high degree of newness because of the higher newness is coupled with increased market potential (Drucker, 1985) Moreover, certain individual characteristics also affect the attractiveness of venture idea. According to Shane (2000), individual's prior knowledge is closely associated with the recognition of venture ideas. Sarasvathy's (2001) Effectuation theory proposes a high degree of relatedness between venture ideas and the resource position of the individual. Thus, entrepreneurs may be more attracted to venture ideas that are closely aligned with the knowledge and/or resources they already possess. On the other hand, the potential financial gain (Shepherd & DeTienne, 2005) may be larger for ideas that are not close to the entrepreneurs' home turf. Therefore, potential financial gain is a stimulus that has to be considered separately. We aim to examine how entrepreneurs weigh considerations of different forms of newness and relatedness as well as potential financial gain in assessing the attractiveness of venture ideas. We use conjoint analysis to determine how expert entrepreneurs develop preferences for venture ideas which involved with different degrees of newness, relatedness and potential gain. This analytical method paves way to measure the trade-offs they make when choosing a particular venture idea. The conjoint analysis estimates respondents' preferences in terms of utilities (or part-worth) for each level of newness, relatedness and potential gain of venture ideas. A sample of 50 expert entrepreneurs who were awarded young entrepreneurship awards in Sri Lanka in 2007 is used for interviews. Each respondent is interviewed providing with 32 scenarios which explicate different combinations of possible profiles open them into consideration. Conjoint software (SPSS) is used to analyse data. Results and Implications : The data collection of this study is still underway. However, results of this study will provide information regarding the attractiveness of each level of newness, relatedness and potential gain of venture idea and their relative importance in a business model. Additionally, these results provide important implications for entrepreneurs, consultants and other stakeholders as regards the importance of different of attributes of venture idea coupled with different levels. Entrepreneurs, consultants and other stakeholders could make decisions accordingly.

Characteristics of sustainable entrepreneurship : some early explorations from the CAUSEE study

Principal Topic: For forward thinking companies, the environment may represent the ''biggest opportunity for enterprise and invention the industrial world has ever seen'' (Cairncross 1990). Increasing awareness of environmental and sustainability issues through media including the promotion of Al Gore's ''An Inconvenient Truth'' has seen increased awareness of environmental and sustainability issues and increased demand for business processes that reduce detrimental environmental impacts of global development (Dean & McMullen 2007). The increased demand for more environmentally sensitive products and services represents an opportunity for the development of ventures that seek to satisfy this demand through entrepreneurial action. As a consequence, increasing recent market developments in renewable energy, carbon emissions, fuel cells, green building, and other sectors suggest an increasing importance of opportunities for environmental entrepreneurship (Dean and McMullen 2007) and increasingly important area of business activity (Schaper 2005). In the last decade in particular, big business has sought to develop a more ''sustainability/ green friendly'' orientation as a response to public pressure and increased government legislation and policy to improve environmental performance (Cohen and Winn 2007). Whilst much of the literature and media is littered with examples of sustainability practices of large firms, nascent and young sustainability firms have only recently begun generating strong research and policy interest (Shepherd, Kuskova and Patzelt 2009): not only for their potential to generate above average financial performance and returns owing to a greater popularity and demand towards sustainability products and services offerings, but also for their intent to lessen environmental impacts, and to provide a more accurate reflection of the ''true cost'' of market offerings taking into account carbon and environmental impacts. More specifically, researchers have suggested that although the previous focus has been on large firms and their impact on the environment, the estimated collective impact of entries and exits of nascent and young firms in development is substantial and could outweigh the combined environmental impact of large companies (Hillary, 2000). Therefore, it may be argued that greater attention should be paid to nascent and young firms and researching sustainability practices, for both their impact in reducing environmental impacts and potential higher financial performance. Whilst acknowledging this research only uses the first wave of a four year longitudinal study of nascent and young firms, it can still begin to provide initial analysis on which to continue further research. The aim of this paper therefore is to provide an overview of the emerging literature in sustainable entrepreneurship and to present some selected preliminary results from the first wave of the data collection, with comparison, where appropriate, of sustainable and firms that do not fulfil this criteria. ''One of the key challenges in evaluating sustainability entrepreneurship is the lack of agreement in how it is defined'' (Schaper, 2005: 10). Some evaluate sustainable entrepreneurs simply as one category of entrepreneurs with little difference between them and traditional entrepreneurs (Dees, 1998). Other research recognises values-based sustainable enterprises requiring a unique perspective (Parrish, 2005). Some see the environmental or sustainable entrepreneurship is a subset of social entrepreneurship (Cohen & Winn, 2007; Dean & McMullen, 2007) whilst others see it as a separate, distinct theory (Archer 2009). Following one of the first definitions of sustainability developed by the Brundtland Commission (1987) we define sustainable entrepreneurship as firms which ''seek to meet the needs and aspirations of the present without compromising the ability to meet those of the future''. ---------- Methodology/Key Propositions: In this exploratory paper we investigate sustainable entrepreneurship using Cohen et al.'s (2008) framework to identify strategies of nascent and young entrepreneurial firms. We use data from The Comprehensive Australian Study of Entrepreneurial Emergence (CAUSEE). This study shares the general empirical approach with PSED studies in the US (Reynolds et al 1994; Reynolds & Curtin 2008). The overall study uses samples of 727 nascent (not yet operational) firms and another 674 young firms, the latter being in an operational stage but less than four years old. To generate the sub sample of sustainability firms, we used content analysis techniques on firm titles, descriptions and product descriptions provided by respondents. Two independent coders used a predefined codebook developed from our review of the sustainability entrepreneurship literature (Cohen et al. 2009) to evaluate the content based on terms such as ''sustainable'' ''eco-friendly'' ''renewable energy'' ''environment'' amongst others. The inter-rater reliability was checked and the Kappa's co-efficient was found to be within the acceptable range (0.746). 85 firms fulfilled the criteria given for inclusion in the sustainability cohort. ---------- Results and Implications: The results for this paper are based on Wave one of the CAUSEE survey which has been completed and the data is available for analysis. It is expected that the findings will assist in beginning to develop an understanding of nascent and young firms that are driven to contribute to a society which is sustainable, not just from an economic perspective (Cohen et al 2008), but from an environmental and social perspective as well. The CAUSEE study provides an opportunity to compare the characteristics of sustainability entrepreneurs with entrepreneurial firms without a stated environmental purpose, which constitutes the majority of the new firms created each year, using a large scale novel longitudinal dataset. The results have implications for Government in the design of better conditions for the creation of new business, firms who assist sustainability in developing better advice programs in line with a better understanding of their needs and requirements, individuals who may be considering becoming entrepreneurs in high potential arenas and existing entrepreneurs make better decisions.

Preliminary review of over-regulation in Australian financial services

This article examines a preliminary review and the limited evidence of over-regulation in Australian financial services. The 1997 Wallis Report and the CLERP 6 paper resulted in the amendments to Ch 7 of the Corporations Act 2001 (Cth) by the Financial Services Reform Act. Nearly a decade later the system based upon 'one-size fits all' dual track regime and a consistent licensing regime has greatly increased the costs of compliance. In the area of enforcement there has not been a dramatic change to the effective techniques applied by ASIC over other agencies such as APRA. In particular there are clear economic arguments, as well as international experiences which state that a single financial services regulator is more effective than the multi-layered approach adopted in Australia. Finally, in the superannuation area of financial services, which is worth A$800 billion there is unnecessary dual licensing and duplicated regulation with little evidence of any consumer-member benefit but at a much greater cost

Pairs trading profits in commodity futures markets

This study employs a pairs trading investment strategy on daily commodity futures returns. The study reveals that pairs trading in similarly related commodity futures earns statistically significant excess returns with commensurate volatility. The excess returns from pairs trading in commodity futures are unrelated to conventional market risk factors and they are not associated with classic contrarian investing. The evidence of pairs trading reflect compensation to arbitrageurs for enforcing the law of one price in similarly related market efficiency.

Incorporating sustainability measures in life-cycle financial decision making for highway construction

Public awareness and the nature of highway construction works demand that sustainability measures are first on the development agenda. However, in the current economic climate, individual volition and enthusiasm for such high capital investments do not present as strong cases for decision making as the financial pictures of pursuing sustainability. Some stakeholders consider sustainability to be extra work that costs additional money. Though, stakeholders realised its importance in infrastructure development. They are keen to identify the available alternatives and financial implications on a lifecycle basis. Highway infrastructure development is a complex rocess which requires expertise and tools to evaluate investment options, such as environmentally sustainable features for road and highway development. Life-cycle cost analysis (LCCA) is a valuable approach for investment decision making for construction works. However, LCCA applications in highway development are still limited. Current models, for example focus on economic issues alone and do not deal with sustainability factors, which are more difficult to quantify and encapsulate in estimation modules. This paper reports the research which identifies sustainability related factors in highway construction projects, in quantitative and qualitative forms of a multi-criteria analysis. These factors are then incorporated into past and proven LCCA models to produce a new long term decision support model. The research via questionnaire, model building, analytical hierarchy processes (AHP) and case studies have identified, evaluated and then processed highway sustainability related cost elements. These cost elements need to be verified by industry before being integrated for further development of the model. Then the Australian construction industry will have a practical tool to evaluate investment decisions which provide an optimum balance between financial viability and sustainability deliverables.

Housing supply in Australia : the impact of the availability of development finance

Before the Global Financial Crisis many providers of finance had growth mandates and actively pursued development finance deals as a way of gaining higher returns on funds with regular capital turnover and re-investment possible. This was able to be achieved through high gearing and low presales in a strong market. As asset prices fell, loan covenants breached and memories of the 1990’s returned, banks rapidly adjusted their risk appetite via retraction of gearing and expansion of presale requirements. Early signs of loosening in bank credit policy are emerging, however parties seeking development finance are faced with a severely reduced number of institutions from which to source funding. The few institutions that are lending are filtering out only the best credit risks by way of constrictive credit conditions including: low loan to value ratios, the corresponding requirement to contribute high levels of equity, lack of support in non-prime locations and the requirement for only borrowers with well established track records. In this risk averse and capital constrained environment, the ability of developers to proceed with real estate developments is still being constrained by their inability to obtain project finance. This paper will examine the pre and post GFC development finance environment. It will identify the key lending criteria relevant to real estate development finance and will detail the related changes to credit policies over this period. The associated impact to real estate development projects will be presented, highlighting the significant constraint to supply that the inability to obtain finance poses.

Measuring performance of municipal real estate : softening the impact of financial crisis to local governments

Asset management in local government is an emerging discipline and over a decade has become a crucial aspect towards a more efficient and effective organisation. One crucial feature in the public asset management is performance measurement toward the public real estates. This measurement critically at the important component of public wealth and seeks to apply a standard of economic efficiency and effective organisational management especially in such global financial crisis condition. This paper aims to identify global economic crisis effect and proposes alternative solution for local governments to softening the impact of the crisis to the local governments organisation. This study found that the most suitable solution for local government to solve the global economic crisis in Indonesia is application of performance measurement in its asset management. Thus, it is important to develop performance measurement system in local government asset management process. This study provides suggestions from published documents and literatures. The paper also discusses the elements of public real estate performance measurement. The measurement of performance has become an essential component of the strategic thinking of assets owners and managers. Without having a formal measurement system for performance, it is difficult to plan, control and improve local government real estate management system. A close look at best practices in public sectors reveals that in most cases these practices were transferred from private sector reals estate management under the direction of real estate experts retained by government. One of the most significant advances in government property performance measurement resulted from recognition that the methodology used by private sector, non real estate corporations for managing their real property offered a valuable prototype for local governments. In general, there are two approaches most frequently used to measure performance of public organisations. Those are subjective and objective measures. Finally, findings from this study provides useful input for the local government policy makers, scholars and asset management practitioners to establish a public real estate performance measurement system toward more efficient and effective local governments in managing their assets as well as increasing public services quality in order to soften the impact of global financial crisis.

Rethinking financial literacy in the aftermath of the Global Financial Crisis

Systemic risks and other factors that contributed to the global financial crisis have highlighted the need to reconsider the scope and nature of financial literacy initiatives and programs. In this article, we argue the case for rethinking financial literacy and the need for integrated solutions that explicitly incorporate solutions to behavioural shortcomings exhibited by individuals in their financial decision-making. While recognising the need to consider behavioural biases in individuals’ financial decisions, to date regulatory responses have largely ignored those biases in their proposed education and other strategies designed to address poor financial literacy and improve financial disclosure that, in turn, will improve financial decision-making.

Client recommendations for financial incentives on construction projects

Purpose: To provide recommendations for construction clients who design and implement financial incentive mechanisms (FIMs) on projects. ---------- Methodology: Four large Australian building projects commissioned by government clients under managing contractor contracts and completed between 2001 and 2005 were examined to explore the ‘drivers’ that promoted motivation toward financial incentive goals. The results were triangulated across data sources, projects and stakeholder types. ---------- Findings: FIM design should incorporate: 1. flexibility to modify goals and measurement procedures over time, 2. multiple goals covering different project areas, 3. distribution of rewards across all the key organizations contributing to team performance (e.g. potentially not just the contractor, but the subcontractors and consultants) and a reward amount sufficient to be valued by potential recipients. FIM benefits are maximized through the following complementary procurement initiatives: 4. equitable contract risk allocation, 5. early contractor involvement in design, 6. value-driven tender selection, 7. relationship workshops, and 8. future work opportunities.---------- Research Limitations: This paper provides practical recommendations to industry and hence does not emphasize theoretical aspects.---------- Practical Implications: The uptake of these recommendations is likely to increase the impact of FIMs on motivation and improve project and industry outcomes. Although the study focuses on government clients of building projects, all the recommendations would seem to apply equally to private-sector clients and to non-building projects.---------- Originality: In order to improve motivation and reward high performance, clients are increasingly using FIM in their construction contracts. Despite the rising use of financial incentives, there is a lack of comprehensive construction-specific knowledge available to help clients maximize outcomes. The study addresses this gap in the literature.

Motivation toward financial incentive goals on construction projects

Construction industry observers tout the use of financial incentives as promoters of motivation and commitment on projects. Yet, little empirical evidence exists concerning their effectiveness. What are the drivers of motivation on construction projects? The reasons that construction project participants are motivated to pursue voluntary incentive goals are examined through four Australian case studies. The results demonstrate the critical role played by project relationships and equitable contract conditions in promoting the effectiveness of financial incentives. In the context of a construction project, this study finds financial incentives to be less important to motivation and performance than relationship enhancement initiatives. This finding is unexpected and has implications for the design of project procurement strategies. These results suggest if project clients ignore the importance of relationship quality between participants, the impact of any financial incentive will be compromised.