Journal of Construction Engineering and Project Management

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

DOI QR Code

Prioritization of Price Volatility Management Strategies in Construction Projects

  • Joukar, Alireza (A2F Consulting) ;
  • Nahmens, Isabelina (Department of Mechanical and Industrial Engineering, Louisiana State University) ;
  • Harvey, Craig (Department of Mechanical and Industrial Engineering, Louisiana State University)
  • Published : 2017.09.30
Download PDF
⟨ Previous Next ⟩

Abstract

The existence of material price volatility in construction projects puts forward substantial risks for all parties involved. Depending on the parties involved in the project, type of contracts, and state of the market various risk management strategies are practiced by contracting parties to manage project risks related to price volatility. Unfortunately, in many cases companies fail to select an adequate approach to better manage volatilities of material prices due to the lack of a decision support system to aid in the selection of an appropriate strategy based on the project characteristics. The aim of this study is to identify critical project factors and align them to documented strategies to manage price volatility based on an extensive literature review and industry interviews. This study found Integrated Project Delivery (IPD) as the ideal strategy with respect to project duration; quantitative risk management methods with respect to the cost; and Price Adjustment Clauses (PAC) with respect to the risk allocation, as the top price volatility management strategies.

Keywords

References

  1. Al-Harbi, K. M., "Application of the AHP in project management." International journal of project management, 19(1), 19-27, 2001. https://doi.org/10.1016/S0263-7863(99)00038-1
  2. Allen, E., and Iano, J., Fundamentals of building construction: materials and methods, John Wiley & Sons, 2013.
  3. Aminbakhsh, S., Gunduz, M., and Sonmez, R., "Safety risk assessment using analytic hierarchy process (AHP) during planning and budgeting of construction projects." Journal of safety research, 46, 99-105, 2013. https://doi.org/10.1016/j.jsr.2013.05.003
  4. An, S.-H., Kim, G.-H., and Kang, K.-I., "A case-based reasoning cost estimating model using experience by analytic hierarchy process." Building and Environment, 42(7), 2573-2579, 2007. https://doi.org/10.1016/j.buildenv.2006.06.007
  5. Anderson, S. D., Damnjanovic, I., and Nejat, A., "Effects of Project Cost Reduction Methods." Transportation Research Record: Journal of the Transportation Research Board, 2151(-1), 28-35, 2010. https://doi.org/10.3141/2151-04
  6. Ashouri , B., and Lu, J., "Time Series Analysis of ENR Construction Cost Index." Journal of Construction Engineering and Management, 136, 1227-1337, 2010. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000231
  7. Ballard, G., and Howell, G., "Lean project management." Building Research & Information, 31(2), 119-133, 2003. https://doi.org/10.1080/09613210301997
  8. Brown II, L. R., Evaluation of Price Adjustment Clauses for Construction Materials. (Master's thesis). Retrieved from http://scholarcommons.sc.edu/etd/619, 2011.
  9. Dey, P. K., "Managing project risk using combined analytic hierarchy process and risk map." Applied Soft Computing, 10(4), 990-1000, 2010. https://doi.org/10.1016/j.asoc.2010.03.010
  10. Eckert, C., and Eger III, R. J., "Study of liquid asphalt price indices applications to Georgia contracting." Retrieved from http://hdl.handle.net/1853/9296, 2005.
  11. Eger III, R. J., and Guo, H., "Financing Infrastructure: Fixed price vs. Price Index Contract." Journal of Public Procurement, 8(3), 2008.
  12. Farid, F., and Boyer, L., "Fair and reasonable markup (farm) pricing model." Journal of construction engineering and management, 111(4), 374-390, 1985. https://doi.org/10.1061/(ASCE)0733-9364(1985)111:4(374)
  13. Forbes, L. H., and Ahmed, S. M., Modern construction: lean project delivery and integrated practices, CRC Press, 2010.
  14. Hosseinijou, S. A., Mansour, S., and Shirazi, M. A., "Social life cycle assessment for material selection: a case study of building materials." The International Journal of Life Cycle Assessment, 19(3), 620-645, 2014. https://doi.org/10.1007/s11367-013-0658-1
  15. Hsu, T.-H., and Pan, F. F. C., "Application of Monte Carlo AHP in ranking dental quality attributes." Expert Systems with Applications, 36(2), 2310-2316, 2009. https://doi.org/10.1016/j.eswa.2007.12.023
  16. Hwang, S., "Dynamic regression models for prediction of construction costs." Journal of Construction Engineering and Management, 135(5), 360-367, 2009. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000006
  17. Janackovic, G. L., Savic, S. M., and Stankovic, M. S., "Selection and ranking of occupational safety indicators based on fuzzy AHP: A case study in road construction companies." South African Journal of Industrial Engineering, 24(3), 175-189, 2013.
  18. Joukar, A., and Nahmens, I., "Volatility Forecast of Construction Cost Index Using General Autoregressive Conditional Heteroskedastic Method." Journal of Construction Engineering and Management, 04015051, 2015.
  19. Kasim, N., Anumba, C., and Dainty, A. "Improving materials management practices on fast-track construction projects." Proc., Proceedings Twenty First Annual Association of Researchers in Construction Management (ARCOM) Conference, Khosrowshahi, 793-802.
  20. Khanzode, A., Fischer, M., and Reed, D. "Case study of the implementation of the lean project delivery system (LPDS) using virtual building technologies on a large healthcare project." Proc., 13th International Group for Lean Construction Conference: Proceedings, International Group on Lean Construction, 153.
  21. Kosmopoulou, G., and Zhou, X., "Price Adjustment Policies in Procurement Contracting: An Analysis of Bidding Behavior." The Journal of Industrial Economics, 62(1), 77-112, 2014. https://doi.org/10.1111/joie.12036
  22. Kul B. Uppal PE, E., "Contingency." AACE InternationalAACE International, 2010.
  23. Li, J., and Zou, P., "Risk identification and assessment in PPP infrastructure projects using fuzzy Analytical Hierarchy Process and life-cycle methodology." Australasian Journal of Construction Economics and Building, 8(1), 34-48, 2012. https://doi.org/10.5130/ajceb.v8i1.2996
  24. Lichtig, W. A., "Integrated Agreement for Lean Project Delivery, The." Constr. Law., 26, 25, 2006.
  25. Liu, Z. B., Fei, W. S., Wu, P. G., and Chen, F., "The research on building up the hierarchy process and fuzzy evaluation model and evaluation system about the cement concrete pavement on the basis of the fuzzy mathematics theory." Advanced Materials Research, 255, 3228-3233, 2011.
  26. Mehdizadeh, R., "Dynamic and multi-perspective risk management of construction projects using tailor-made Risk Breakdown Structures." Universite Paris-Est Marne la Vallee, 2012.
  27. Mitropoulos, P., Abdelhamid, T. S., and Howell, G. A., "Systems model of construction accident causation." Journal of Construction Engineering and Management, 131(7), 816-825, 2005. https://doi.org/10.1061/(ASCE)0733-9364(2005)131:7(816)
  28. Mustafa, M. A., and Al-Bahar, J. F. (). "Project risk assessment using the analytic hierarchy process." Engineering Management, IEEE Transactions on, 38(1), 46-52, 1991. https://doi.org/10.1109/17.65759
  29. Nahmens, I., and Ikuma, L. H., "An empirical examination of the relationship between lean construction and safety in the industrialized housing industry." Lean Construction Journal, 2009, 1-12, 2009.
  30. Ng, F. P., Bjornsson, H. C., and Chiu, S. S., "Valuing a price cap contract for material procurement as a real option." Construction management and economics, 22(2), 141-150, 2004. https://doi.org/10.1080/0144619042000201349
  31. O'Sullivan, A., and Sheffrin, S. M., Economics: Principles in action, Boston, Mass.: Pearson/Prentice Hall, 2007.
  32. Pierce, C. E., N. N. Huynh, and P. Guimaraes. Cost indexing and unit price adjustments for construction materials. No. FHWA-SC-12-06. 2012.
  33. Redd, L., and Hibbard, T., "Asphalt Risk Management at the Wyoming Department of Transportation."WYDOT, 2009.
  34. Saaty, T. L., Decision Making for Leaders: The Analytical Hierarchy Process for Decisions in a Complex Work, Lifetime Learning Publications, 1981.
  35. Saaty, T. L., "Theory of the analytic hierarchy process. Part 2.1." Системні дослідження та інформаційні технології, 2003.
  36. Saaty, T. L., and Vargas, L. G., "The Seven Pillars of the Analytic Hierarchy Process." 175, 23-40, 2012.
  37. Shapira, A., and Goldenberg, M., "AHP-based equipment selection model for construction projects." Journal of Construction Engineering and Management, 131(12), 1263-1273, 2005. https://doi.org/10.1061/(ASCE)0733-9364(2005)131:12(1263)
  38. Skolnik, J., Price Indexing in Transportation Construction Contracts, Jack Faucett Associates, 2011.
  39. Smith, J. P., Miller, K., Christofferson, J., and Hutchings, M., "Best Practices for Dealing with Price Volatility in Utah's Residential Construction Market." International Journal of Construction Education and Research, 7(3), 210-225, 2011 https://doi.org/10.1080/15578771.2011.552935
  40. Thomas, H. R., Horman, M. J., de Souza, U. E. L., and Zavrski, I.,"Closure to "Reducing Variability to, 2004. Improve Performance as a Lean Construction Principle" by H. Randolph Thomas, Michael J. Horman, Ubiraci Espinelli Lemes de Souza, and Ivica Zavrski." Journal of Construction Engineering and Management, 130(2), 300-301. https://doi.org/10.1061/(ASCE)0733-9364(2004)130:2(300)
  41. Touran, A., and Lopez, R., "Modeling Cost Escalation in Large Infrastructure Projects." Journal of Construction Engineering and Management, 853-860, 2006.
  42. weidman, J. E., Miller, K. R., Christoffersen, J. p., and Newitt, J. S., "Best Practices for Dealing with Price Volatility in Commercial Construction." International Journal of Construction Education and Research, 7(4), 17, 2011.
  43. Whang, S.-W., and Kim, S., "Determining sustainable design management using passive design elements for a zero emission house during the schematic design." Energy and Buildings, 77, 304-312, 2014. https://doi.org/10.1016/j.enbuild.2014.03.066
  44. Wilmot, C. G., and Cheng, G., "Estimating Future Highway Construction Cost." Journal of Construction Engineering and Management, 2003.
  45. Xu, J.-w., and Moon, S., "Stochastic Forecast of Construction Cost Index Using a Cointegrated Vector Autoregression Model." Journal of Management in Engineering, 29(1), 10-18, 2013. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000112
  46. hang-yin, L., and Sheng-hui, J., "Evaluation Method on Effectiveness of Sustainable Engineering Construction Project Management." International Journal of Applied Environmental Sciences, 8(9), 2013.