---
title: Construction Spread
slug: construction-spread
url: https://templeton.host/lexicon/construction-spread/
type: defined-term
inDefinedTermSet: https://templeton.host/lexicon
author: Andrew Templeton
---

# Construction Spread

## Definition

S = (annual_value x P(success)) / build_cost. The risk-adjusted return on the capital deployed to build a knowledge asset. Rank opportunities by spread descending. Deploy capital top-down until budget is exhausted.

## Why this term exists

PE funds rank deals by risk-adjusted return on deployed capital. Knowledge assets are the same asset class with a different depreciation curve. If you can't calculate the spread, you're guessing where to invest.

## See also

- [Automation NPV](https://templeton.host/tools/automation-npv)
- [Knowledge Capital](https://templeton.host/frameworks/knowledge-capital)
- [Compile Time](https://templeton.host/lexicon/compile-time)
- [Dual Curve](https://templeton.host/lexicon/dual-curve)
- [Operational Alpha](https://templeton.host/lexicon/operational-alpha)

Canonical URL: https://templeton.host/lexicon/construction-spread/