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
Check out some of the best features and news from Designing Buildings as well as key stories from around the web.
Rethinking passive fire protection in design
PFP demands the same level of design rigour as structure or services.
38% of Gen Zs feel safe when a fire door is wedged open.
Stunning images from around the world
Shortlist for CIOB’s Art of Building photography competition.
Guidance for conversion of traditional pre-1919 stone buildings.
Industrial heritage in the Ruhr
A marked difference to the fate of industrial landscapes in the UK.
Communities will be able to build their own clean energy.
Why diversity and inclusion matters for SMEs
CIOB’s D&I Charter shows how practical changes can support long-term growth.
Cut electricity bills to power growth
Coalition sends joint letter to the Chancellor.
Gasholders: a history in pictures. Book review.
Recognition, influence and growth
SocEnv identifies three strategic pillars in new strategy to 2045.
Discover the future of roofing, cladding and insulation.
New guidance for professional practice, cultural change and regulation in social housing.