Valuing Sustainability of Adaptable Infrastructure Using ROA-SEC: A Hybrid Approach




Adaptability, Adaptation, Sustainability, Infrastructure, Real Options, Social and Environmental Costing


Infrastructure providing fundamental services for societies may become obsolete under changing environments such as climate or demographics changes, creating the need for adaptability. Designing infrastructure for adaptability may affect life cycle costs as well as environmental and social issues such as resources consumption, waste production or disruption to services provided. Sustainability valuation of adaptable infrastructure is thus required. The Real Options Analysis (ROA) is widely used to evaluate financial viability of investing in adaptable infrastructure. But, the environmental and social aspects have been barely noticed and incorporated. Hence, a valuation method is required to properly address all aspects of sustainability. This paper bridges the gap and advances the literature by presenting a methodology for designed-in adaptability valuation, considering all the sustainability aspects. To this end, a hybrid approach is suggested through integration of Social and Environmental Costing (SEC) with ROA, providing a single measure for sustainability of adaptable infrastructure. In this approach, the outputs of Life Cycle Assessment (LCA) tools are monetized using SEC methods; and then incorporated in the ROA that is built on the probabilistic Discounted Cash Flow (DCF) analysis, suitable for engineering applications. The application of the proposed approach is illustrated on a case example involving seawalls under changing climate effects. For the case example, including sustainability issues in the analysis improved the viability of designing in adaptability. This conclusion cannot be generalized and each situation requires an individual analysis. However, the proposed approach and methodology will be the same in all the situations.

Author Biography

Reza Taheriattar, School of Civil and Environmental Engineering, University of New South Wales

Reza Taheriattar has PhD in Engineering Construction and Management from University of New South Wales (UNSW). Reza has publications in his research areas of interest including sustainability in construction, adaptation, and systems thinking. He has been passionate about bridging between theory and practice, involved in construction industry and performed project planning and management roles. Reza is also passionate about sharing knowledge through teaching in his areas of expertise: construction engineering, planning and management, and sustainability.


ABS. (2019). 6306.0 - Employee Earnings and Hours, Australia, May 2018. Retrieved June, 2019, from

Ackerman, F. & Stanton, E.A. (2012). Climate Risks and Carbon Prices: Revising the Social Cost of Carbon. Economics: The Open-Access, Open-Assessment E-Journal. 6(10): 1–25.

Australian Government. (2011). Clean Energy Bill 2011 - A Bill for an Act to encourage the use of clean energy, and for other purposes. Canberra: The Parliament of the Commonwealth of Australia.

Barton, K. & Lawryshyn, Y. (2011). Integrating Real Options with Managerial Cash Flow Estimates. The Engineering Economist. 56(3): 254–273.

Block, S. (2007). Are "Real Options" Actually Used In The Real World?. The Engineering Economist. 52(3): 255–267.

Carmichael, D.G. (2014). Infrastructure Investment – An Engineering Perspective. London: CRC Press, Taylor and Francis.

Carmichael, D.G. & Balatbat M.C.A. (2009). The Incorporation Of Uncertainty Associated With Climate Change Into Infrastructure Investment Appraisal. In Conference – Manageing Projects, Programs and Ventures in Times of Uncertainty and Disruptive Change. 1-9. Sydney, 19-20 November.

Carmichael, D.G., Hersh, A.M. & Parasu, P. (2011). Real Options Estimate Using Probabilistic Present Worth Analysis. The Engineering Economist. 56(4): 295–320.

Carmichael, D.G. & Taheriattar, R. (2018). Valuing Deliberate Built-in Flexibility in Houses–Exampled. International Journal of Strategic Property Management. 22(6): 479–488.

Clarkson, R. & Deyes, K. (2002). Estimating the Social Cost of Carbon Emissions. London: DEFRA.

Commonwealth of Australia. (2014). Unemployment benefits and the minimum wage. Retrieved June, 2019, from

Commonwealth of Australia. (2015). 2015 Intergenerational Report: Australia in 2055. Canberra: Commonwealth of Australia.

Conrad, S.A. & Raucher, R.S. (2013). Opportunities for Managing Climate Change by Applying Adaptive Management. Project #4380. Denver: Water Research Foundation.

Copeland, T. & Antikarov, V. (2001). Real options: a Practitioner’s Guide. New York: Texere.

Dascalu, C., Caraiani, C., Lungu, C.I., Colceag, F. & Guse, G.R. (2010). The externalities in social environmental accounting. International Journal of Accounting & Information Management. 18(1): 19–30.

de Beer, P. & Friend, F. (2006). Environmental Accounting: A Management Tool For Enhancing Corporate Environmental And Economic Performance. Ecological Economics. 58(3): 548–560.

de Neufville, R. & Scholtes, S. (2011). Flexibility in Engineering Design. Cambridge: MIT Press.

de Neufville, R., Scholtes, S. & Wang, T. (2006). Real Options By Spreadsheet: Parking Garage Case Example. Journal of Infrastructure Systems. 12(3): 107–111.

Department of Human Services. (2019). A Guide to Australian Government Payments. Canberra: Australian Government.

Dinwiddy, C.L. & Teal, F. (1992). The Shadow Price Of Labour In A Dual Economy. London: Department of Economics – University of London.

Dompere, K.K. (1995). The Theory Of Social Costs And Costing For Cost-Benefit Analysis In A Fuzzy-Decision Space. Fuzzy Sets and Systems. 76(1): 1–24.

Engel, A. & Browning, T.R. (2008). Designing Systems For Adaptability By Means Of Architecture Options. Systems Engineering. 11(2):125–146.

EPA. (1995). An Introduction to Environmental Accounting as a Business Management Tool: Key Concepts and Terms. Washington: US Environmental Protection Agency.

Fawcett, W., Urquijo, I.R., Krieg, H., Hughes, M., Mikalsen, L. & Gutiérrez, O.R.R. (2014). Cost and Environmental Evaluation of Flexible Strategies for a Highway Construction Project under Traffic Growth Uncertainty. Journal of Infrastructure Systems. 21(3): 05014006-1–14.

Gilchrist, A. & Allouche, E.N. (2005). Quantification of Social Costs Associated With Construction Projects: State-Of-The-Art Review. Tunnelling and Underground Space Technology. 20(1): 89–104.

Godoy, S.G.M.D. & Saes, M.S.M. (2016). A solution for an externality, greenhouse gases: carbon market. International Journal of Environment and Sustainable Development. 15(4): 369–391.

Gosling, J., Sassi, P., Naim, M. & Lark, R. (2013). Adaptable Buildings: A Systems Approach. Sustainable Cities and Society. 7: 44–51.

Howell, S., Stark, A., Newton, D.P., Paxson, D.A., Cavus, M., Azevedo-Pereira, J. & Patel, K. (2001). Real Options: Evaluating Corporate Investment Opportunities in a Dynamic World. London: Pearson Education Limited.

Hyder Consulting. (2011). Construction and Demolition Waste Status Report - Management Of Construction And Demolition waste in Australia. Melbourne: Department of the Environment and Energy.

ISO. (2006). Environmental management - Life Cycle Assessment: Principles And Framework. ISO 14040:2006. Geneva: International Organization for Standardization.

Kodukula, P. & Papudesu, C. (2006). Project Valuation Using Real Options - A Practitioner's Guide. Fort Lauderdale: J. Ross Publishing Inc.

Lehmann, A., Zschieschang, E., Traverso, M., Finkbeiner, M. & Schebek, L. (2013). Social Aspects For Sustainability Assessment Of Technologies—Challenges For Social Life Cycle Assessment (SLCA). The International Journal of Life Cycle Assessment. 18(8): 1581–1592.

Leopold, E. & Leonard, S. (1987). Costs of Construction Accidents to Employers. Journal of Occupational Accidents. 8(4): 273–294.

Lewis, N.A., Eschenbach, T.G. & Hartman, J.C. (2008). Can we capture the value of option volatility?. The Engineering Economist. 53(3): 230–258.

Lohmann, L. (2009). Toward a Different Debate In Environmental Accounting: The Cases Of Carbon And Cost–Benefit. Accounting, Organizations and Society. 34(3): 499–534.

Londero, E.H. & Cervini, H. (2003). Shadow Prices for Project Appraisal - Theory and Practice. Gloucestershire: Edward Elgar.

Mirasgedis, S., Diakoulaki, D., Papagiannakis, L. & Zervos, A. (2000). Impact Of Social Costing On The Competitiveness Of Renewable Energies: The Case of Crete. Energy Policy. 28(1): 65–73.

Moffatt, S. & Russell, P. (2001). Assessing the Adaptability of Buildings. Ottawa: Canada Mortgage and Housing Corporation.

Mohan, R., Palermo, M., Costello, M., Koubsky, D., Rieger, J. & Jackson, M.M. (2011). Development of an in-lieu Fee For Sediment Remediation in the Elizabeth River. In WEDA XXXI Technical Conference & TAMU 42 Dredging Seminar. 220-233. Nashville, 5-8 June.

NCCOE. (2012). Guidelines for Responding To The Effects Of Climate Change In Coastal And Ocean Engineering. Canberra: Engineers Australia.

Parker, L.D. (2000). Environmental Costing: A Path To Implementation. Australian Accounting Review. 10(3): 43–51.

Rogmans, T. & Ghunaim, M. (2016). A framework for Evaluating Sustainability Indicators In The Real Estate Industry. Ecological Indicators. 66: 603–611.

Rosengard, J., Wallace, J., Otten, M., MacDonald, A. & Lafrenz, R. (2010). A Parametric Model For Estimating Costs For Remediating Contaminated Sediment Sites Using A Dredging Method - A Budgetary And Planning Tool For Decision-Makers. International Journal of Soil, Sediment and Water. 3(2): 1–12.

Safe Work Australia. (2010). Occupational Noise-Induced Hearing Loss In Australia - Overcoming Barriers To Effective Noise Control And Hearing Loss Prevention. Barton: Commonwealth of Australia.

Safe Work Australia. (2012). Australian Work-Related Injury Experience By Sex And Age, 2009–10. Canberra: Commonwealth of Australia.

Sah, R.J. & Stiglitz, J.E. (1985). The Social Cost Of Labor And Project Evaluation: A General Approach. Journal of Public Economics. 28(2): 135–163.

Schneider, T. & Till, J. (2005). Flexible Housing: Opportunities And Limits. Theory. 9(2): 157–166.

Scholtes, S. (2007). Flexibility: The Secret To Transforming Risk Into Opportunities. Business Digest. 174(May): 5–7.

Siew, R.Y.J., Balatbat, M.C.A. & Carmichael, D.G. (2016). Measuring Project Sustainability Maturity Level – A Fuzzy-based Approach. International Journal of Sustainable Development. 19(1): 76–100.

Slaughter, E.S. (2001). Design Strategies To Increase Building Flexibility. Building Research and Information. 29(3): 208–217.

Smit, B. & Pilifosova, O. (2001). Adaptation To Climate Change In The Context Of Sustainable Development And Equity. In: Patwardhan, A. & Soussana, J.F. (ed.) Climate Change: Impacts, Adaptation and Vulnerabilities - IPCC Third Assessment Report. Cambridge: Cambridge University Press.

Song, S. (2018). Assessment of Transport Emissions Impact And The Associated Social Cost for Chengdu, China. International Journal of Sustainable Transportation. 12(2): 128–139.

Steen, B. (2005). Environmental Costs And Benefits In Life Cycle Costing. Management of Environmental Quality: An International Journal. 16(2): 107–118.

Strutz, T. (2016). Data Fitting and Uncertainty - A Practical Introduction To Weighted Least Squares And Beyond. Weisbaden: Springer Vieweg.

Swarr, T.E., Hunkeler, D., Klöpffer, W., Pesonen, H.L., Ciroth, A., Brent, A.C. & Pagan, R. (2011). Environmental Life-Cycle Costing: A Code Of Practice. The International Journal of Life Cycle Assessment. 16(5): 389–391.

Tan, Y., Shen, L.-Y. & Langston, C. (2011). A Fuzzy Approach for Assessing Contractors Competitiveness. Engineering, Construction and Architectural Management. 18(3): 234–247.

Taneja, P., Ligteringen, H. & Walker, W.E. (2012). Flexibility In Port Planning And Design. European Journal of Transport and Infrastructure Research (EJTIR). 12(1): 66–87.

Taylor, J.R. (1997). An Introduction to Error Analysis - The Study Of Uncertainties In Physical Measurements. Sausalito: University Science Books.

Tzeng, G.H. & Huang, J.J. (2011). Simple Additive Weighting Method. Multiple Attribute Decision Making: Methods and Applications. 1st ed. Boca Raton: Chapman and Hall/CRC.

Van Putten, A.B. & MacMillian, I.C. (2004). Making Real Options Really work. Harvard Business Review. 82(12): 134–142.

Wang, T. & de Neufville, R. (2005). Real Options “In” Projects. 9th Real Options Annual International Conference. Paris, 22-25 June.

Wang, Z., Yang, D.Y., Frangopol, D.M. & Jin, W. (2019). Inclusion of Environmental Impacts In Life-Cycle Cost Analysis Of Bridge Structures. Sustainable and Resilient Infrastructure. 4: 1–16.

Wilkinson, S.J., James, K. & Reed, R. (2009). Using Building Adaptation To Deliver Sustainability in Australia. Structural Survey. 27(1): 46–61.




How to Cite

Taheriattar, R. (2019). Valuing Sustainability of Adaptable Infrastructure Using ROA-SEC: A Hybrid Approach. International Journal of Built Environment and Sustainability, 7(1), 67–79.