Valuing indoor air quality benefits in a healthcare construction project with real option analysis

Abstract

Indoor air quality (IAQ) can produce significant economic benefits for the tenant during the use of the building. However, currently the potential economic benefits on a tenant's employees' health and performance are not considered in feasibility studies for IAQ investments. Here, the economic value refers to benefits that can be expressed numerically in terms of money such as cost savings and increased revenues and that which impacts the building user organization's financial profitability. This paper is one of the first known studies to explore real option analysis (ROA) as a potential approach to evaluate the life-cycle profitability of investments in IAQ. The research is carried out as a case study, which is a healthcare construction project in Finland. The main finding of this paper is that ROA seems to provide a viable method for the evaluation of investments in IAQ. In the case study, the economic benefits of IAQ to the tenant are noticeable. The real option value of the economic benefits of better IAQ is almost 4 million euros and the real option pay-off of the IAQ investment exceeds 0.5 million euros. The results are indicative only but imply that ROA is a promising method to evaluate investments in IAQ.