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A Real Option Perspective to Evaluate Purchase Decisions of Construction Materials with High Price Volatility
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 Title & Authors
A Real Option Perspective to Evaluate Purchase Decisions of Construction Materials with High Price Volatility
Kim, Byungil; Kim, Changyoon;
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 Abstract
Decision-making in construction projects often include options features. Such embedded options are difficult to value properly and many decision makers do not have experience in option analysis. The purpose of this paper is to demonstrate how real option analysis can be used to value capital expenditures on construction materials. We propose a real option framework to evaluate decision-making processes involving the purchase of construction materials. A case study was conducted by evaluating the purchase decision-making of solar cells, a good with high price volatility. Using real option analysis two strategies to improve the financial feasibility of installing a solar panel system were derived. The first strategy involves using a price cap that gives the project manager the right, but not obligation, to buy the modules for a predefined price during the next year. The second strategy is to defer the purchase of the solar cells until future price information becomes clearer. Both of the strategies in the case study were valued using the binominal model. This study will help to improve the financial feasibility of purchasing construction materials with high price volatility by including the value of managerial flexibility.
 Keywords
Real Option;Binomail Model;Decision-Making;Solar Cell;
 Language
Korean
 Cited by
1.
수치지도를 이용한 고속국도 주변 태양광 패널 설치 대상지 선정,정재훈;김병일;

한국건설관리학회논문집, 2016. vol.17. 5, pp.71-77 crossref(new window)
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