Journal of Construction Engineering and Project Management

Korea Institute of Construction Engineering and Management (한국건설관리학회)
권호 표지
DOI QR코드

DOI QR Code

Using Real Options to value the flexibility of Engineering Management decisions in Infrastructure Projects

  • Koo, Bonsang (Dept. of Civil Engineering, Seoul National University of Science and Technology)
  • Accepted : 2013.02.01
  • Published : 2013.03.01
Download PDF
⟨ Previous Next ⟩

Abstract

Determining on a particular construction method is typically decided in the initial phases of a project. However, changing conditions during actual construction may require a different method or technology to be employed. Providing an option for project managers to change construction provides flexibility that can increase value to the overall project. This research provides the ability to modify construction methods as a real option, which allows its value to be modeled. The research also formalizes a way to integrate a binomial lattice model with the Earned Value Method's S-curve. The integrated model provides a decision support tool that planners can use to determine whether to exercise the option depending on the status metrics provided by EVM.

Keywords

References

  1. M. Amram, N. Kulatilaka, "Real Options: Managing Strategic Investment in an Uncertain World", Harvard Business School Press, Cambridge, MA, 1999.
  2. T. Copeland, V. Antkarov, "Real Options: A Practitioner's Guide", Monitor Group, 2002.
  3. J.C. Cox, A.S. Ross, M. Rubinstein, "Option Pricing: A Simplified Approach", Journal of Financial Economics, vol. 7, no. 3, pp. 229-263, 1979. https://doi.org/10.1016/0304-405X(79)90015-1
  4. D. Ford, D. Lander, J. Voyer, "A real option approach to valuing strategic flexibility in uncertain construction projects", Construction Management and Economics, vol. 20, no.4, pp. 343-51, 2002. https://doi.org/10.1080/01446190210125572
  5. R. Harvey Campbell, "Identifying real options", Duke University, 2002.
  6. Y.-L. Huang, S.-P. Chou, "Valuation of the minimum revenue guarantee and the option to abandon in BOT infrastructure projects", Construction Management and Economics, vol. 24, no. 4, pp. 379-389, 2006. https://doi.org/10.1080/01446190500434997
  7. Z. Tong, K.S. Satheesh, T. Chung-Li, "Highway Development Decision-Making under Uncertainty: A Real Options Approach", Journal of Infrastructure Systems, vol. 10, no. 1, pp. 23-32, 2004. https://doi.org/10.1061/(ASCE)1076-0342(2004)10:1(23)
  8. Q. Cui, M. Bayraktar, M. Hastak, I. Minkarah, "Use of Warranties on Highway Projects: A Real Option Perspective", Journal of Management in Engineering, vol. 20, no. 3, pp. 118-125, 2004. https://doi.org/10.1061/(ASCE)0742-597X(2004)20:3(118)
  9. T. Zhao, C. Tseng, "Valuing Flexibility in Infrastructure Expansion", Journal of Infrastructure Systems, vol. 9, no. 3, pp. 89-97, 2003. https://doi.org/10.1061/(ASCE)1076-0342(2003)9:3(89)