In the heart of Jakarta’s bustling Kuningan district, a critical decision looms over the Ombudsman of the Republic of Indonesia: should they invest in a new building or renovate the existing one? This dilemma has been meticulously analyzed in a recent study published by Sunaryo Sunaryo, a professor at Universitas Tarumanagara, Jakarta. The research, which employs advanced financial modeling techniques, offers compelling insights that could reshape how similar decisions are made in the future.
The study, which was published in Teras Jurnal: Jurnal Teknik Sipil, translates to “Foundation Journal: Civil Engineering Journal,” delves into the intricacies of investment feasibility using the discounted cash flow (DCF) method. This approach, combined with Monte Carlo simulations, provides a robust framework for evaluating the financial viability of constructing a new building versus upgrading the existing structure.
At the core of the analysis are several key indicators: occupancy rates, construction cost increases, rental cost increases, and service charge increases. These factors were simulated to create detailed cash flow projections for both scenarios. The results are striking. For the existing building, the study found a positive Net Present Value (NPV) of Rp.155,274,649,791 and an Internal Rate of Return (IRR) of 31.5%, with a payback period of 6 years and 4 months. “The existing building shows strong financial potential,” Sunaryo noted, “but the new construction offers even greater long-term benefits.”
When considering a new building, the NPV jumps to Rp.184,233,384,822, with an IRR of 17.5% and a payback period of 8 years and 8 months. The comparison between the two options reveals a positive NPV of Rp.28,958,735,031 and an IRR of 18.88%, with a payback period of 9 years and 1 month. These figures, when subjected to Monte Carlo simulations, yield an average positive NPV of Rp.21,854,144,293 and an average IRR of 11.4%, with an average payback period of 8 years and 11 months.
The study’s findings suggest that building new is the more financially sound option, with a higher NPV and IRR compared to the Minimum Acceptable Rate of Return (MARR) of 7.47%. “The new building alternative is not only feasible but also offers greater long-term financial benefits,” Sunaryo explained. However, he cautioned that maintaining the existing building requires a thorough technical analysis to ensure its reliability.
The implications of this research extend beyond the Ombudsman’s office. For the construction and energy sectors, the use of DCF and Monte Carlo simulations provides a powerful tool for evaluating large-scale investment decisions. As Sunaryo points out, “This methodology can be applied to various projects, helping stakeholders make informed decisions that balance financial viability with long-term sustainability.”
The study’s emphasis on detailed financial modeling and risk assessment sets a new standard for investment feasibility studies. By incorporating multiple variables and simulating different scenarios, decision-makers can gain a clearer picture of the potential outcomes and risks associated with their investments. This approach is particularly relevant in the energy sector, where projects often involve significant upfront costs and long-term payback periods.
As the construction industry continues to evolve, the integration of advanced financial modeling techniques will become increasingly important. The research by Sunaryo Sunaryo offers a glimpse into the future of investment analysis, where data-driven decisions and risk assessment play a pivotal role. For professionals in the construction and energy sectors, this study serves as a valuable guide, highlighting the importance of thorough financial analysis in shaping the future of infrastructure development.