Overview
This lecture introduces Net Present Value Plus (NPV+), a framework for capital project analysis that incorporates both traditional financial and non-monetary environmental/social factors to support sustainable, long-term investment decisions.
Introduction to NPV+
- NPV+ is an expanded approach to benefit-cost analysis for capital investments by cities, states, or universities.
- Unlike traditional net present value (NPV), NPV+ considers unpriced costs like environmental degradation and unpriced benefits like ecological resiliency.
- Every project cost or benefit, even if no money is exchanged, is treated as a cash flow in NPV+.
Traditional NPV vs. NPV+
- Traditional NPV sums revenue and expenditures over time and discounts them to present value using an interest rate.
- Traditional NPV often ignores externalities, assuming steady economic growth and moderate resource costs.
- NPV+ includes scenario analysis to account for uncertain futures and factors not typically monetized.
NPV+ Methodology and Purpose
- NPV+ evaluates all potential cash flows, including environmental and social impacts, for a more comprehensive investment assessment.
- Scenario analysis in NPV+ helps anticipate various future economic and environmental conditions.
- The method supports better long-term wealth maximization and more realistic guidance for policymakers, especially under resource constraints and climate change.
Applications and Case Studies
- NPV+ was developed with support from the Maryland government and the Rockefeller Foundation.
- It has been applied to state spending decisions on vehicles, weatherization, land conservation, and facilities.
- NPV+ can be used for diverse capital projects, such as resource-efficient buildings or mass transit systems.
Key Terms & Definitions
- Net Present Value (NPV) — The sum of discounted revenues and expenditures over a project's lifetime.
- NPV+ (Net Present Value Plus) — An analysis framework that adds non-monetary costs and benefits, including environmental and social impacts, to traditional NPV.
- Scenario Analysis — Assessing investment outcomes under multiple possible future scenarios.
- Externalities — Costs or benefits of a project not reflected in direct financial transactions (e.g., pollution, ecosystem services).
Action Items / Next Steps
- Review the Maryland NPV+ summary report for practical examples.
- Explore the Footprint Calculator to assess your personal or organizational ecological impact.
- For further questions or collaboration, contact Global Footprint Network.