IDEAS home Printed from https://ideas.repec.org/a/taf/conmgt/v28y2010i12p1239-1254.html
   My bibliography  Save this article

Modelling completion risk using stochastic critical path-envelope method: a BOT highway project application

Author

Listed:
  • Nakhon Kokkaew
  • Nicola Chiara

Abstract

In integrated project delivery methods such as build-operate-transfer (BOT), a thorough financial risk analysis model should incorporate completion risk analysis into operation risk analysis as the timing of financial events such as refinancing and debt servicing depend on the construction completion date. During construction, project managers always have opportunities to react to negative events and to take corrective actions whenever possible to recover late-running schedules. These opportunities to react are 'real options' embedded in the construction process. However, current models of completion risk analysis ignore this feature of project managers. A reliable construction completion risk model for project feasibility studies should capture a manager's option to react to unforeseen, negative events. A novel approach for modelling construction completion risk analysis is developed by combining stochastic critical path method with the envelope method (SCP-EM). The SCP-EM approach can model the option-like feature of management feedback reactions in a straightforward fashion. The proposed approach, if applied correctly during the project feasibility study stage, enhances the project finance risk model by helping analysts properly evaluate financial risk arising from completion delay.

Suggested Citation

  • Nakhon Kokkaew & Nicola Chiara, 2010. "Modelling completion risk using stochastic critical path-envelope method: a BOT highway project application," Construction Management and Economics, Taylor & Francis Journals, vol. 28(12), pages 1239-1254.
  • Handle: RePEc:taf:conmgt:v:28:y:2010:i:12:p:1239-1254
    DOI: 10.1080/01446193.2010.521755
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/01446193.2010.521755
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:conmgt:v:28:y:2010:i:12:p:1239-1254. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/RCME20 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.