A Decision support tool for contingency and profit analysis of international construction portfolios


Thesis Type: Postgraduate

Institution Of The Thesis: Middle East Technical University, Faculty of Engineering, Department of Civil Engineering, Turkey

Approval Date: 2015

Thesis Language: English

Student: Nizami Özçelik

Supervisor: RİFAT SÖNMEZ

Abstract:

In construction sector, estimations of contingency and profit amounts are generally based on experience and intuition. However, the relation between the desired profit amount and the risk undertaken is not considered usually during profit setting. In addition, most of the studies in the literature have been focused on a single project’s contingency rate, but many construction companies carry out several projects simultaneously. Contingency-profit analysis for portfolios of projects is very important to evaluate the adequacy of the expected profit in terms of the risks undertaken for construction companies. This study aims to fill the mentioned gaps in contingency-profit evaluation for portfolios of international construction projects by developing a decision support tool. The developed tool estimates portfolio contingency rates by using a method that integrates regression analysis and bootstrap method, and this method includes the advantages of parametric and probabilistic estimating methods at the same time. The proposed tool will show the condition of portfolio on the risk-profit evaluation graph. In this way, the tool enables companies to decide on sufficiency of the expected profit rate in response to the undertaken risks. Moreover, the decision support tool provides a contingency range for the planned portfolio, and the obtained range enables contractors to evaluate their portfolios in different cases. In this thesis, the presented tool for contingency and profit analysis of international construction portfolios is introduced using a sample portfolio that consists of international construction projects. The developed decision support tool enables contractors to perform overall risk return analysis of their portfolio to achieve adequate contingency and profit decisions during bidding for international projects.