A real options approach to valuing strategic flexibility in uncertain construction projects
- 1 June 2002
- journal article
- research article
- Published by Informa UK Limited in Construction Management and Economics
- Vol. 20 (4), 343-351
- https://doi.org/10.1080/01446190210125572
Abstract
To maximize project value, managers of construction projects must recognize, plan for and strategically manage uncertainty. Current construction planning, estimating, and management practices regarding uncertainty can undervalue projects by failing to exploit opportunities to increase project value, as well as minimize risks. Dynamic uncertainties are described as project conditions that cannot be resolved adequately through improved description or planning for pre-project strategy selection. A real options approach is proposed for proactively using strategic flexibility to recognize and capture project values hidden in dynamic uncertainties. An example of a proposal for a toll road project demonstrates a method of valuing managerial flexibility to evaluate and select strategies. Impacts of real options in other domains, along with this example, are the basis for concluding that using a structured real options approach in construction management can increase returns through improved project planning and management. Potential impacts of the use of real options are discussed, and challenges in valuing real options in construction projects are identified as the basis for future research.Keywords
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