Time value of money
The New Rules of Measurement (NRM) are published by the Royal Institute of Chartered Surveyors (RICS). They provide a standard set of measurement rules for estimating, cost planning, procurement and whole-life costing for construction projects.
NRM3: Order of cost estimating and cost planning for building maintenance works, defines ‘time value of money’ as:
| …the measurement of the difference between future monies and the present day value of monies. |
It suggests that:
| The present value (PV) concept captures the time value of money by making adjustments through compounding and discounting cash flows to reflect the increase in costs due to inflation and the increased value of money when invested. The PV of a cash flow reflects, in today’s terms, the value of future cash flows adjusted for the cost of capital. In essence, the time value of money reflects the fact that money in hand today is more valuable than an identical amount of money received in the future. Since money today can earn interest, all costs must be adjusted to reflect the inflation rate and then discounted to reflect the effect of interest rates on their PV. |
More detailed guidance is provided in Appendix G of NRM3.
[edit] Find out more
[edit] Related articles on Designing Buildings Wiki
Featured articles and news
Twas the site before Christmas...
A rhyme for the industry and a thankyou to our supporters.
Plumbing and heating systems in schools
New apprentice pay rates coming into effect in the new year
Addressing the impact of recent national minimum wage changes.
EBSSA support for the new industry competence structure
The Engineering and Building Services Skills Authority, in working group 2.
Notes from BSRIA Sustainable Futures briefing
From carbon down to the all important customer: Redefining Retrofit for Net Zero Living.
Principal Designer: A New Opportunity for Architects
ACA launches a Principal Designer Register for architects.
A new government plan for housing and nature recovery
Exploring a new housing and infrastructure nature recovery framework.
Leveraging technology to enhance prospects for students
A case study on the significance of the Autodesk Revit certification.
Fundamental Review of Building Regulations Guidance
Announced during commons debate on the Grenfell Inquiry Phase 2 report.
CIAT responds to the updated National Planning Policy Framework
With key changes in the revised NPPF outlined.
Councils and communities highlighted for delivery of common-sense housing in planning overhaul
As government follows up with mandatory housing targets.
CIOB photographic competition final images revealed
Art of Building produces stunning images for another year.
HSE prosecutes company for putting workers at risk
Roofing company fined and its director sentenced.
Strategic restructure to transform industry competence
EBSSA becomes part of a new industry competence structure.
Major overhaul of planning committees proposed by government
Planning decisions set to be fast-tracked to tackle the housing crisis.
Industry Competence Steering Group restructure
ICSG transitions to the Industry Competence Committee (ICC) under the Building Safety Regulator (BSR).
Principal Contractor Competency Certification Scheme
CIOB PCCCS competence framework for Principal Contractors.
The CIAT Principal Designer register
Issues explained via a series of FAQs.