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Aoieong, R T, Tang, S L and Ahmed, S M (2002) A process approach in measuring quality costs of construction projects: model development. Construction Management and Economics, 20(02), 179-92.

Drew, D S, Lai, P Y, Li, H and Lo, H P (2002) Correcting the fee-technical score variability imbalance in two-envelope fee tendering. Construction Management and Economics, 20(02), 157-66.

Haan, J D, Voordijk, H and Joosten, G-J (2002) Market strategies and core capabilities in the building industry. Construction Management and Economics, 20(02), 109-18.

Ho, S P and Liu, L Y (2002) An option pricing-based model for evaluating the financial viability of privatised infrastructure projects. Construction Management and Economics, 20(02), 143-56.

Leu, S-S and Hung, T-H (2002) A genetic algorithm-based optimal resource-constrained schedule simulation model. Construction Management and Economics, 20(02), 131-41.

Nicolini, D (2002) In search of 'project chemistry'. Construction Management and Economics, 20(02), 167-77.

Sing, T-F (2002) Time to build options in construction processes. Construction Management and Economics, 20(02), 119-30.

  • Type: Journal Article
  • Keywords: time to build option; project payoff uncertainty; input cost uncertainty; sequential investment; option premium
  • ISBN/ISSN: 0144-6193
  • URL: https://doi.org/10.1080/0144619011010209
  • Abstract:

    Time to build is a very important factor in a real estate development venture. Delay in completion of a project not only affects the financing costs and the rental revenue but also it may, on a more strategic note, determine the success or failure of a project. A time to build option model consisting of a stochastic rate of completion and a stochastic net project payoff is applied to the sequential construction process of a large scale construction project. The results of the sensitivity analysis show that the optimal payoff value, that triggers the exercise of the option to invest at a maximum rate, increases positively with the increases in cash flow volatility, input cost uncertainty, excess asset return per unit risk and maximum rate of investment. However, it has a negative relationship with the rental yield. In a case study involving a commercial project, the premium for hedging the payoff risks by pre-leasing a project was estimated at 11.29%, whereas the additional cost incurred for shielding a project against input cost risks in a design and build contract was estimated at 7.80%, where each is given as a percentage of the total construction costs